Question
The firm is financed with both equity and debt. The firm has 500,000 shares outstanding priced at $7 per share. The firms beta is 1.2.
The firm is financed with both equity and debt. The firm has 500,000 shares outstanding priced at $7 per share. The firms beta is 1.2. The risk-free rate is 2.1% and the expected return on the market is 13% next year. The face value of the firms debt is $1,500,000 (with the par value of $1,000), which is currently quoted at 98. The coupon rate is 7%, with the coupons paid semiannually. The bonds have 12 years left to maturity. The tax rate is 21%.
Referring to the previous problem: What is the after-tax cost of debt of the firm? (show calculator steps)
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