PVE,Inc.has $15 million of debt outstanding with a coupon rate of 9%.Currently,the yield to maturity on these bonds is 7%.If the firm's tax rate is 35%,what is the after-tax cost of debt to J & B?

Question

Quizplus · Accepted Answer

To calculate the after-tax cost of debt, we need to first calculate the before-tax cost of debt using the yield to maturity:

Before-tax cost of debt = Yield to maturity = 7%

Then we can calculate the after-tax cost of debt using the formula:

After-tax cost of debt = Before-tax cost of debt x (1 - tax rate)

After-tax cost of debt = 7% x (1 - 0.35) = 4.55%

Therefore, the after-tax cost of debt to J & B is 4.55%. The best choice is C.

PVE,IncHas $15 Million of Debt Outstanding with a Coupon Rate