The before-tax cost of debt for a firm which has a 40 percent marginal tax rate is 12 percent. Theaftertax cost of debt is

Name: The before-tax cost of debt for a firm which has a 40 percent marginal tax rate is 12 percent. Theaftertax cost of debt is
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Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated using the formula: 
After-tax cost of debt = Before-tax cost of debt x (1 - Marginal tax rate) 
= 12% x (1 - 0.4) 
= 7.2% 
Therefore, the after-tax cost of debt is 7.2 percent, which is option B.

The Before-Tax Cost of Debt for a Firm Which Has