Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt?

Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 10QTD

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1.

What is the appropriate rate to discount the interest tax shields associated with your debt?

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