1. You have been provided the information on the after-tax cost of debt and cost of capital that a company will have at a 10% debt ratio, and asked to estimate the after-tax cost of debt and cost of capital at 20%. The long term Treasury bond rate is 7%.

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The interest coverage ratios, ratings and spreads are as follows: Coverage Ratio Rating Spread over Treasury > 10 AAA 7-10 AA 5-7 A 3-5 2-3 1.25-2 0.75 -1.25 0.50 -0.75 0.25 -0.50 <0.25 BBB BB B CCC CC C D 0.30% 1.00% 1.50% 2.00% 2.50% 3.00% 5.00% 6.50% 8.00% 10.00% The interest coverage ratios, ratings and spreads are as follows: Coverage Ratio Rating Spread over Treasury > 10 AAA 7-10 AA 5-7 A 3-5 2-3 1.25-2 0.75 -1.25 0.50 -0.75 0.25 -0.50 <0.25 BBB BB B CCC CC C D 0.30% 1.00% 1.50% 2.00% 2.50% 3.00% 5.00% 6.50% 8.00% 10.00%

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ANSWER ChatGPT ChatGPT To estimate the aftertax cost of debt and cost of capital at a 20 debt ratio we need to determine the appropriate interest rate ... View the full answer