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Advance, Inc., is trying to determine its cost of debt. The firmhas a debt issue outstanding with 10 years to maturity that isquoted at 95 percent of face value. The issue makes semiannualpayment and has a coupon rate of 8 percent annually. What isAdvance’s pretax cost of debt? If the tax rate is 35 percent, whatis the after-tax cost of debt?
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