A company's target debt-to-equity ratio is 1.25. Its CPMC is 9% and the tax rate is...

A company's target debt-to-equity ratio is 1.25. Its CPMC is 9% and the tax rate is 35%. If the cost of equity is 14% what is the cost of debt before tax?

Expert Solution

0.09 = (1.25/2.25)(Cost of debt)(1 - 0.35) + (1/2.25)(0.14)

Cost of debt = 7.69%

jeff jeffy answered 2 years ago

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