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Currently, a company is financed with 40% equity and 60% debt. The debt consists of 15-year $1,000 face-value bonds that pay semi-annual interest payments based
Currently, a company is financed with 40% equity and 60% debt. The debt consists of 15-year $1,000 face-value bonds that pay semi-annual interest payments based on an annual coupon rate of 7%. The market price of the firms bonds is currently $1034. Further, the company has a beta of 1.4. The expected return on the market is expected to be 14% while the risk-free rate is 4%. The marginal tax rate is 40%. What is the company's before-tax cost of debt?
4.20%
6.64%
3.32%
3.98%
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