The after-tax cost of borrowed funds to the firm is estimated by multiplying the pretax interest rate, i, by (1 - t), where t is the marginal tax rate for the firm.

Question

Quizplus · Accepted Answer

This statement is true. The after-tax cost of borrowing is the effective interest rate paid by the firm after taking into account the tax savings resulting from deductions on interest payments. It is calculated by multiplying the pretax interest rate, i, by (1 - t), where t is the marginal tax rate for the firm.

The After-Tax Cost of Borrowed Funds to the Firm Is