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Pavel [41]
3 years ago
8

LL Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 14%. LL believes it could issue new bonds at

par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is LL's after-tax cost of debt? Round your answer to two decimal places.
Business
1 answer:
Hitman42 [59]3 years ago
6 0

Answer:

The after-tax cost of debt of LL Incorporated  rounded to decimal places is 9.80%

Explanation:

First and foremost ,the before tax cost of debt is the yield to maturity of 14%

Having determined the before-tax cost of debt,the after-tax cost of debt is the before-tax cost of debt adjusted for marginal tax rate of 30% as computed thus:

after-tax cost of debt=before-tax cost of debt*(1-t)

the t is the tax rate of 30% which is also 0.3

after tax cost of debt=14%*(1-0.3)

                                  =14%*0.7=9.80%

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