Assume a firm's bonds are currently yielding new investors 6%. The combined federal and state tax rate is 40%. What is the firm's after-tax cost of debt is?

Name: Assume a firm's bonds are currently yielding new investors 6%. The combined federal and state tax rate is 40%. What is the firm's after-tax cost of debt is?
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Question

Quizplus · Accepted Answer

The after-tax cost of debt is the yield to investors multiplied by (1 - tax rate). In this case, the after-tax cost of debt is 6% * (1 - 0.40) = 3.6%.

Assume a Firm's Bonds Are Currently Yielding New Investors 6