If a firm can borrow at 9% , what discount rate should the firm use to discount lease cash flows? (The marginal tax rate for the firm is 35%)

Question

Quizplus · Accepted Answer

The after-tax cost of debt for the firm can be calculated as:
After-tax cost of debt = Pre-tax cost of debt x (1 - Marginal tax rate)
= 9% x (1 - 0.35)
= 5.85%
Therefore, the discount rate that the firm should use to discount lease cash flows is 5.85%.

If a Firm Can Borrow at 9% , What Discount