Montreal Snowmobiles has issued bonds at par that are paying 10% interest per year.The firm has a tax rate of 40%.What is the firm after-tax cost of debt?
A)10%
B)6%
C)14%
D)7%

Name: Montreal Snowmobiles has issued bonds at par that are paying 10% interest per year.The firm has a tax rate of 40%.What is the firm after-tax cost of debt? A)10% B)6% C)14% D)7%
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Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated as the interest rate (10%) multiplied by (1 - tax rate), which is 10% * (1 - 0.40) = 10% * 0.60 = 6%.

Montreal Snowmobiles Has Issued Bonds at Par That Are Paying