Question: Suppose that Black Decker s interest rate on newly issued debt
Suppose that Black & Decker’s interest rate on newly-issued debt is 7.5% and the firm’s marginal federal-plus-state income tax rate is 40%. This implies a 4.5% after-tax component cost of debt. Also assume that the firm has decided to finance next year’s projects by selling debt. Does this mean that next year’s investment projects have a 4.5% cost of capital?
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