For the purpose of estimating the ﬁrm's cost of debt for a project, one could observe the yield-to-
maturity on recently issued bonds with a similar rating and term-to-maturity.

Question

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This is a common method of estimating a firm's cost of debt, as the yield-to-maturity on similar bonds can provide a good estimate of the interest rate the firm would have to pay on its debt for the project.

For the Purpose of Estimating the ﬁRm's Cost of Debt