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17 February, 07:15

A global conglomerate has a debt beta of zero. If the cost of equity is 12.23 percent, and the risk-free rate is 4.36 percent, what is the firm's pretax cost of debt?

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  1. 17 February, 10:53
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    The firm's pretax cost of debt is 4.36%

    Explanation:

    For computing the firm's pretax cost of debt, we have to used the formula which is shown below:

    = Risk free rate of return + Beta * market risk premium

    where,

    Risk free rate of return is 4.36%

    Beta is 0

    Market risk premium is not given

    Now apply these values to the above formula

    So, the answer would be

    = 4.36% + 0

    = 4.36%

    The cost of equity is irrelevant. Thus, it is ignored in the computation part.

    Hence, the firm's pretax cost of debt is 4.36%
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