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Chapter 20

Question 15

Non-tradeable debt

Bishop Co has a fixed rate bank loan of $2 million. The interest rate charged on
the loan is 7% per annum. The corporation tax rate is 30%.

Calculate the post-tax cost of the loan.

Kd = interest rate × (1 – T)

Kd = 7 × 0.7 = 4.9%

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