The Long Pond Freight Company needs to acquire $500,000 worth of containerized boxes used for intermodal transportation. The company can borrow the funds needed to make the purchase at 9% interest. The boxes have a life of 20 years and will be included in a 10% CCA class if purchased. The other option is to lease the boxes for a 20-year period. The corporate tax rate is 35%.

What is the after-tax cost of debt?

Question

What is the after-tax cost of debt?

Quizplus · Accepted Answer

The after-tax cost of debt is calculated as the interest rate (9%) multiplied by (1 - tax rate), which is 9% * (1 - 0.35) = 5.85%.

The Long Pond Freight Company Needs to Acquire $500,000 Worth