Determine the after-tax cost and debt issue

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After tax cost of debt and preferred stock.

1. Calculate the after-tax cost of a $25 million debt issue that a company with a 40 percent marginal tax rate is planning to place privately with a large insurance company. This long-term issue will yield 6.6% to the insurance co. Calculate and explain.

2. Calculate & explain the after-tax cost of preferred stock for a company which is planning to sell $10 million of $4.50 cumulative preferred stock to the public at a price of $48 a share. Marginal tax rate of 40%.

Reference no: EM1314515

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