The after-tax cost of debt is found by:
A) dividing the before-tax cost of debt by (1 - the corporate tax rate).
B) subtracting (1 - the corporate tax rate) from the before-tax cost of debt.
C) multiplying the before-tax cost of debt by (1 - the corporate tax rate).
D) subtracting the corporate tax rate from the before-tax cost of debt.

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated by multiplying the before-tax cost of debt by (1 minus the corporate tax rate), which accounts for the tax deductibility of interest expenses.

The After-Tax Cost of Debt Is Found By