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    Cost of debt

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    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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    https://brainmass.com/business/interest-rates/cost-debt-formulas-113344

    Solution Preview

    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.

    $2.19

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