The costs for the given situations. Introduction: Cost includes both indirect cost and direct cost that are imposed on the investors and firm, in case of bankruptcy, it imposes both direct and indirect cost. This assumption is ignored in a perfect capital market. A cost of debt is an effective rate a company pays on its present debt. Cost of debt is measured before taking taxes into account.

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Chapter 16, Problem 27P

Summary Introduction

To determine: The costs for the given situations.

Introduction:

Cost includes both indirect cost and direct cost that are imposed on the investors and firm, in case of bankruptcy, it imposes both direct and indirect cost. This assumption is ignored in a perfect capital market.

A cost of debt is an effective rate a company pays on its present debt. Cost of debt is measured before taking taxes into account.

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