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Pan American Airlines' shares are currently trading at $69.25 each. The yield on Pan Am's debt is 4% and the firm's beta is 0.7. The
Pan American Airlines' shares are currently trading at $69.25 each. The yield on Pan Am's debt is 4% and the firm's beta is 0.7. The T-Bill rate is 4% and the expected return on the market (E (kM)) is 9%. The company's target capital structure is 25% debt and 75% equity. Pan American Airlines pays a combined federal and state tax rate of 35%. What is Pan Am's cost of debt (after tax)?
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