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Q: Dublin International Corporation’s marginal tax rate is 40%. It can issue three-year bonds with a coupon rate of 8.5% and par value of $1,000. The bonds can be sold now at a price of $938.90 each.
The underwriters will charge $23 per bond in flotation costs. Determine the approximate after-tax cost of debt for Dublin International to use in a capital budgeting analysis. A. 5.1% B. 8.5% C. 9.2% D. 6.0%
A: coupon rate of 8.5% marginal tax rate is 40%. after tax cost of debt = KD(1-T) = 0.085(1-0.40)= 0.051
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Asked 4/6/2013 1:11:13 PM
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