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Question
S. Claus & Company is planning a zero coupon bond issue. The bond has a par value of $1,000, matures in 2 years, and will be sold at a price of $826.45. The firm's marginal tax rate is 40 percent. What is the annual after-tax cost of debt to the company on this issue?
a. 4.0%
b. 6.0%
c. 8.0%
d. 10.0%
e. 12.0%
Answer
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