Question
Kernel Industries has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%,
Kernel Industries has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Kernel Industries has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%. St. Augustine, Austin, New Orleans, Operating income: 480000 600000 1020000, Assets 2000000 4000000 6000000, Current Liabilities 100000 300000 600000 What is the After-Tax Cost of Debt financing for Kernel Industries?
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