The outstanding debt of Berstin Corp.has ten years to maturity,a current yield of 7%,and a price of $95.Assume the debt has a face value of $100.What is the pretax cost of debt if the tax rate is 30%.

Question

Quizplus · Accepted Answer

Using the formula for calculating the pretax cost of debt:
Pretax cost of debt = Current yield * (1 - Tax rate)
Pretax cost of debt = 7% * (1 - 0.3)
Pretax cost of debt = 4.9%
Therefore, the correct answer is D) 4.9%.

The Outstanding Debt of Berstin Corp