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Gre4nikov [31]
2 years ago
9

Issuing a $1,000 par value bond with a yield to maturity of 10%. The company is in a 35 percent marginal tax bracket. What will

be the firm’s after-tax cost of debt on the bond?
Business
1 answer:
san4es73 [151]2 years ago
5 0

Answer:

6.50%

Explanation:

The after-tax cost of the debt is the yield to maturity after having deducted the tax shield which is computed using the formula below:

after-tax cost of debt=pretax cost of debt*(1-tax rate)

pretax cost of debt=yield to maturity=10%

tax rate=35%

The after-tax cost of debt=10%*(1-35%)

The after-tax cost of debt=10%*65%

The after-tax cost of debt=6.50%

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