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A company has the option of offering long-term debt with an interest cost of 12.0%, or preferred shares with an interest cost of 10.5%. Assume
A company has the option of offering long-term debt with an interest cost of 12.0%, or preferred shares with an interest cost of 10.5%. Assume the corporate tax rate is 21%. Compare the before-tax and after-tax cost of both the long-term debt and the preferred shares.
Which is less expensive in each case (before-tax and after-tax)?
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