What is the firm after-tax cost of debt

Reference no: EM133251890

Question - A firm's target capital structure is 35% debt, 15% preferred stock, and 50% common equity. Its bonds have a 6.5% coupon, paid semiannually, a current maturity of 15 years, and sell for $1,100. The firm could sell, at par, $100 preferred stock which pays a 8% annual dividend, but flotation costs of 6% would be incurred. The firm's beta is 1.85, the risk-free rate is 3.5%, and the market risk premium is 5%. The firm's marginal tax rate is 21%. What is the firm's after-tax cost of debt?

Reference no: EM133251890

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