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Your firm has asked you to estimate the cost of debt on an after-tax basis for a component in the weighted average cost of capital
Your firm has asked you to estimate the cost of debt on an after-tax basis for a component in the weighted average cost of capital (WACC). The firm currently has some 20-year semiannual bonds outstanding. The current price of those bonds is $1050 (quote of 105). Your investigation shows that these bonds current have a contractual quoted coupon of 9.00%. The firm is operating in a tax environment of 25% that you do not anticipate to change prior to the issue of the new debt. What is the after-tax cost of debt? What would the after-tax cost be if the firm paid $10 a bond to get new debt issued? Do not round interim steps in your calculations, but round final percentage answers to two decimal places (e.g., xx.xx%)
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