Epson has one bond outstanding with a yield to maturity of 5% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1.1, the risk-free rate is 3.1% and the expected market risk premium is 6%. Epson has a target debt/equity ratio of 0.7 and a marginal tax rate of 34%. What is Epson's (pre-tax) cost of debt?

Epson has one bond outstanding with a yield to maturity of 5% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1.1, the risk-free rate is 3.1% and the expected market risk premium is 6%. Epson has a target debt/equity ratio of 0.7 and a marginal tax rate of 34%. What is Epson's (pre-tax) cost of debt?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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