Outstanding debt of Home Depot trades with a yield to maturity of %. The tax rate of Home Depot is . What is the effective cost

Question

3 years ago

14

of debt of Home Depot?

1 answer:

nydimaria [60] · Answer 1 · 2021-12-20T05:02:26+03:00

Answer:

5.6%

Explanation:

A lot of information is missing, so I looked for similar questions to fill in the blanks:

"Outstanding debt of Home Depot trades with a yield to maturity of 8%.

The tax rate of Home Depot is 30%.

What is the effective cost of debt of Home Depot?"

the effective cost of debt or after tax cost of debt = debt's yield to maturity x (1 - tax rate) = 8% x (1 - 30%) = 8% x 0.7 = 5.6%

Interest is tax deductible, therefore, it creates a tax shield that lowers net interest expense.

Outstanding debt of Home Depot trades with a yield to maturity of ​%. The tax rate of Home Depot is . What is the effective cost