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Determine the pretax cost of debt

Problem: Assume that Dell issued 30-year bonds, 8% coupon rate, semiannual, 7 years ago. The bond currently sells for 108% of face value. The company's tax rate is 35%.

1. What is the pretax cost of debt?

2. What is the after-tax cost of debt?

3. Which is more important and why?

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Finance Basics: Determine the pretax cost of debt

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Finance Basics: Determine the pretax cost of debt

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