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Nobleford Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. Assume the par value of the bond is $1,000.

a) What is the company’s pretax cost of debt?

b) If the tax rate is 35 percent, what is the aftertax cost of debt?

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Financial Management, Finance

Category:- Financial Management
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