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If you obtain more debt its believed the interest expense

Your firm is investigating whether it should increase its debt capital as a way to grow the business more quickly. If you obtain more debt, it's believed the interest expense will be about 7.5% annually. Your tax rate is about 30%. What is the after-tax cost of new debt?

a) 7.50%

b) 2.25%

c) 5.25%

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Finance Basics: If you obtain more debt its believed the interest expense

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