Question
A firm's mix of debt and equity (target capital structure) is 26% equity and the rest debt and has a weighted average cost of capital
A firm's mix of debt and equity (target capital structure) is 26% equity and the rest debt and has a weighted average cost of capital (WACC) of 12%. There are sufficient retained earnings in the firm to fund the equity portion of its capital budget. The firm's cost of equity is 18.87%, and the tax rate is 40%. The expected dividend next period (D) is $13 and the firm's current stock price is $90.
What is the before-tax cost of debt for the company? For your answer, round to the nearest 0.1% do not use the % symbol. For example, if your obtain 0.01058, then enter 10.6; if you obtain 0.00224 then enter 0.2
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