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Springfield Corporation, Whose Tax Rate Is 40%, Has Two Sources

Question 82

Multiple Choice

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springfield's after-tax cost of debt is:


A) .0320
B) .0480
C) .0800
D) .0912

Correct Answer:

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