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TBQ has a market capitalization of $10 million, and $2.5 million in outstanding debt. Suppose their beta is 1.20, the risk-free rate is 2%, and

TBQ has a market capitalization of $10 million, and $2.5 million in outstanding debt. Suppose their beta is 1.20, the risk-free rate is 2%, and the expected return of the market is 8%. TBQ’s debt cost of capital is 6% and their corporate tax rate is 40%. What is the after-tax debt cost of capital?


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