What is the firm before-tax cost of debt

Reference no: EM13265013

The Green Balloon just paid its first annual dividend of $0.57 a share. The firm plans to increase the dividend by 3.5 percent per year indefinitely. The firm's stock is selling for $6.50 a share. The Green Balloon issued 20-year zero coupon bonds 4 years ago. Currently, these bonds are selling at 32.8 percent of face value of $1,000. The tax rate is 35 percent.

a. What is the firm's cost of equity?
b. What is the firm's before-tax cost of debt?
c. What is the firm's after-tax cost of debt?

Reference no: EM13265013

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