The after-tax cost of debt is equal to one minus the marginal tax rate times the yield to maturity on the firm's outstanding debt.

Name: The after-tax cost of debt is equal to one minus the marginal tax rate times the yield to maturity on the firm's outstanding debt.
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Question

Quizplus · Accepted Answer

This is correct. The after-tax cost of debt formula takes into account the tax savings from deducting interest payments on taxes, so the calculation is (1 - tax rate) x yield to maturity.

The After-Tax Cost of Debt Is Equal to One Minus