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Exactly five years ago, Mac Tools issued bonds with an original maturity of 25 years. These bonds pay interest semiannually, and have a fixed coupon
Exactly five years ago, Mac Tools issued bonds with an original maturity of 25 years. These bonds pay interest semiannually, and have a fixed coupon rate of 6.5%. These bonds are currently trading for $1070 for each $1000 of face value. The company faces a marginal tax rate of 25%.
- Find Macs post-tax marginal cost of debt. (3 points)
- In describing your calculations as Lees marginal cost of debt, what are you implicitly assuming about Lees plans about the maturity of any new debt it might issue? (2 points)
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