TC,Inc.has $15 million of outstanding bonds with a coupon rate of 10 percent.The yield to maturity on these bonds is 12.5 percent.If the firm's tax rate is 30 percent,what is relevant cost of debt financing to TC,Inc.?

Question

Quizplus · Accepted Answer

The cost of debt financing is calculated as the yield to maturity (YTM) on the bonds, adjusted for the tax savings from interest expense. The formula is: Cost of Debt = YTM * (1 - Tax Rate). Plugging in the given values: 12.5% * (1 - 0.30) = 8.75%.

TC,IncHas $15 Million of Outstanding Bonds with a Coupon Rate