Find what company after-tax cost of debt cosmo corporation

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Cosmo Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 7.5 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,105.78. The firm could sell, at par, $100 preferred stock which pays a 8 percent annual dividend, but flotation costs of 5 percent would be incurred. Cosmo's beta is 1.8, the risk-free rate is 2.45 percent, and the market risk premium is 5 percent. The firm's marginal tax rate is 40 percent.

Problem 1: What is the company's after-tax cost of debt?

Reference no: EM132962710

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