A company has an outstanding bond issue with a 7.75% coupon, paid semiannually, a current maturity of 20 years, and it sells for $967.97. The firm's income tax rate is 40% What should the firm's managers use as an after-tax cost of debt for cost of capital purposes? 2.42% O8.08% 4.04%

A company has an outstanding bond issue with a 7.75% coupon, paid semiannually, a current maturity of 20 years, and it sells for $967.97. The firm's income tax rate is 40% What should the firm's managers use as an after-tax cost of debt for cost of capital purposes? 2.42% O8.08% 4.04%

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

A company has an outstanding bond issue with a 7.75% coupon, paid semiannually, a current maturity of 20 years, and it sells for $967.97.
The firm's income tax rate is 40%, What should the firm's managers use as an after-tax cost of debt for cost of capital purposes?
4.85%
2.42%
8.08%
4.04 %

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