Tykes Toys' 8 percent annual coupon bond has 8 years until maturity and the bonds are selling in the market for $988. If the firm's after-tax cost of debt is 11.75 percent, what was the firm's tax rate?

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated as the coupon rate multiplied by (1 - tax rate). Given the coupon rate is 8% and the after-tax cost of debt is 11.75%, solving for the tax rate gives approximately 30.13%.

Tykes Toys' 8 Percent Annual Coupon Bond Has 8 Years