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Company X has a short term bank loan on which it pays 6% interest. The company also has long term bonds outstanding that pay 7%
Company X has a short term bank loan on which it pays 6% interest. The company also has long term bonds outstanding that pay 7% interest and have a 5% yield to maturity. If the company were to issue a new bond, based on the existing bonds 5% yield to maturity, the new bond issue would pay 5% interest. The companys debt is 50% short term debt and 50% long term bonds. What is the pre tax cost of debt that should be used in calculating the WACC?
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