Question

On January 1, Year 1, Brown Co. issued bonds with a face value of $200,000, a stated rate of interest of 10%, and a 20-year term to maturity. The bonds were issued at face value. If Bluefield's tax rate is 40%, what is the after-tax cost of borrowing related to these bonds for Year 1?

Answer 1

Answer:

the after tax borrowing cost is $12,000

Explanation:

The computation of the after tax borrowing cost is shown below;

= Annual interest - tax savings

= ($200,000 ×0.10)  - ($200,000 × 0.40)

= $20,000 - $8,000

= $12,000

hence, the after tax borrowing cost is $12,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered