If the debt is trading at face value,what coupon rate is being paid on debt for a firm with an after-tax cost of debt of 7.5% and a tax rate of 40%?

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated as the coupon rate multiplied by (1 - tax rate). If the debt is trading at face value, the coupon rate equals the pre-tax cost of debt. Solving 7.5% = Coupon Rate * (1 - 0.40) gives a coupon rate of 12.5%.

If the Debt Is Trading at Face Value,what Coupon Rate