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A company is considering issuing long-term debt with $1000 par value. The debt would have a 30 year maturity and a 10 percent coupon rate
A company is considering issuing long-term debt with $1000 par value. The debt would have a 30 year maturity and a 10 percent coupon rate and make annual coupon payments. In order to sell the issue, the bonds must be underpriced at a discount of 5 percent of face value. In addition, the firm would have to pay flotation costs of 2.5 percent of face value. The firms tax rate is 35 percent. Given this information, the after tax cost of debt for Cars to Make would be
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