Key Motors has a cost of equity of 14.26 percent and an unlevered cost of capital of 11.34 percent. The company has $35,000 in debt that is selling at par value. The levered value of the company is $79,000 and the tax rate is 21 percent. What is the pretax cost of debt?
A) 5.73 percent
B) 6.18 percent
C) 6.58 percent
D) 6.69 percent
E) 5.92 percent

Question

Quizplus · Accepted Answer

The Answer of Key Motors has a cost of equity of 14.26 percent and an unlevered cost of capital of 11.34 percent. The company has $35,000 in debt that is selling at par value. The levered value of the company is $79,000 and the tax rate is 21 percent. What is the pretax cost of debt?
A) 5.73 percent
B) 6.18 percent
C) 6.58 percent
D) 6.69 percent
E) 5.92 percent

Key Motors Has a Cost of Equity of 14