Question: Ellwood Corp. has a five-year bond issue outstanding with a coupon rate of 10 percent and a price of $1,039.56. If the bonds pay coupons

Ellwood Corp. has a five-year bond issue outstanding with a coupon rate of 10 percent and a price of $1,039.56. If the bonds pay coupons semiannually, what is the pretax cost of the debt and what is the after-tax cost of the debt? Assume the marginal tax rate for the firm is 40 percent.

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