Outstanding debt of Flight Centre (FLT) trades with a yield to maturity of 8%. The tax rate of FLT is 35%. What is the effective cost of debt of FLT?

Name: Outstanding debt of Flight Centre (FLT) trades with a yield to maturity of 8%. The tax rate of FLT is 35%. What is the effective cost of debt of FLT?
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Question

Quizplus · Accepted Answer

The effective cost of debt is the after-tax cost of debt. It is calculated as the yield to maturity multiplied by (1 - tax rate). In this case, the effective cost of debt is 8% * (1 - 0.35) = 5.2%.

Outstanding Debt of Flight Centre (FLT) Trades with a Yield