Suppose company ABC can issue new 10-year bonds, with 8 percent coupon, paid semi-annually. Assume a tax rate of 30 percent. The company's after-tax cost of debt if these bonds are issued at 100 is closest to:

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated using the formula: After-tax cost of debt = Coupon rate * (1 - Tax rate). Here, it is 8% * (1 - 0.30) = 8% * 0.70 = 5.60%.

Suppose Company ABC Can Issue New 10-Year Bonds, with 8