# Cost of debt

Poulsbo Manufacturing Inc., is currently an all-equity firm that pays no taxes. The market value of firm's equity is $3 million. The cost of this unlevered equity is 15% per annum. Poulsbo plans to issue 600,000 in debt and use the proceeds to repurchase stock. The cost of debt is 4% semi-annually.

I want to figure out: Where does the formula or calculation come from that gives me a cost of debt of 8.16% in order to figure out what the cost of equity will be?

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I want to figure out: Where does the formula or calculation come from that gives me a cost of debt of 8.16% in order to figure out what the cost of equity will be? ...

#### Solution Summary

The solution explains how to calculate the cost of debt. The formulas and calculations which come from the figures are determined.