What is the after-tax cost of debt

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Reference no: EM13500331

1. CompU has a target capital structure of 30 percent debt and 70 percent equity. It has $280,000 in retained earnings. CompU's investment banking firm has advised them that they can issue $300,000 of secured debt. The $300,000 issue will consist of 10-year, $1,000 par value bonds that pay 9% and can be sold for $938.55. Flotation costs for debt is negligible and can be ignored. Flotation costs for new common stock are $1 per share; the expected stock price is $7.00. The last dividend paid was $0.80 and they expect the dividends to grow at a constant growth rate of 6% into the foreseeable future. CompU's marginal tax rate is 40%.

What is the after-tax cost of debt

Reference no: EM13500331

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