What is firm before-tax cost of debt capital

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You are trying to determine your firm's cost of debt capital. The only debt on the balance sheet is a series of bonds that the firm has issued. The bonds are not frequently traded, and therefore it is not possible to determine the market price.

Problem 1: The following table shows various debt ratings, along with an analyst's estimate of the credit spread for the ratings shown. Standard and Poor's have given your firm a AA(120) debt rating. The risk-free rate of return is 2.9% and the corporate tax rate is 30%. What is your firm's before-tax cost of debt capital?

Reference no: EM132882742

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