After-Tax Cost of Debt Assignment | Homework For You

Question 37 . 1 pts Last year, a company issued $50 million of debt that was entirely bought by a private investor. This debt, which was issued at par and is not traded, has a nine-year remaining life and pays 8.0 percent interest on a semiannual basis. If the company were to issue $10 million in new debt today at par value, it would have to pay a coupon of 12.0 percent. The company’s equity has an estimated market value of $5 million and the estimated cost of equity capital is 20 percent. The company has no additional debt or equity outstanding and is currently, and for the foreseeable future, paying no taxes due to past and expected future losses. In determining the company’s weighted average cost of capital, the appropriate after-tax cost of debt is closest to: st of capital, the appropriate a d 13.0 percent 8.7 percent 12.0 percent. Get Finance homework help today