Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:A company issued a 25-year, 5 percent semiannual coupon bond 6 years ago. The bond
currently sells for 106 percent of its face value. The company's tax rate is 25 percent.
a. What is the company's pretax cost of debt? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the company's aftertax cost of debt? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
a.
Pretax cost of debt
4.21%
b.
Aftertax cost of debt
3.16%
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