A corporation issues a bond with a before-tax annual cost to the company of 12.5 percent. This corporation has a marginal tax rate (bracket) of 30 percent. What is the after-tax cost of this bond?

Question

Quizplus · Accepted Answer

The after-tax cost of the bond is calculated as the before-tax cost multiplied by (1 - tax rate). Therefore, the after-tax cost is 12.5% * (1 - 0.30) = 12.5% * 0.70 = 8.75%.

A Corporation Issues a Bond with a Before-Tax Annual Cost