Jefferson Electrical Supply has a cost of equity of 12% and an unlevered cost of capital of 10.5%. The company has $12,000 in debt that is selling at par value. The levered value of the firm is $28,000 and the tax rate is 34%. What is the pre-tax cost of debt? 6.67% 7.23% 7.47% 7.65% 7.71%

Jefferson Electrical Supply has a cost of equity of 12% and an unlevered cost of capital of 10.5%. The company has $12,000 in debt that is selling at par value. The levered value of the firm is $28,000 and the tax rate is 34%. What is the pre-tax cost of debt? 6.67% 7.23% 7.47% 7.65% 7.71%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Jefferson Electrical Supply has a cost of equity of 12% and an unlevered cost of
capital of 10.5%. The company has $12,000 in debt that is selling at par value. The
levered value of the firm is $28,000 and the tax rate is 34%. What is the pre-tax cost
of debt?
6.67%
7.23%
7.47%
7.65%
7.71%

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