Key facts and assumptions concerning FM Foods, Inc. at December 31, 2011, appear below.

-Estimate FM's after-tax cost of debt capital.
A) 2.21%
B) 4.10%
C) 4.55%
D) 6.30%
E) 7.00%
F) None of the above.

Question

Key facts and assumptions concerning FM Foods, Inc. at December 31, 2011, appear below.
 
-Estimate FM's after-tax cost of debt capital.
A) 2.21% 
B) 4.10% 
C) 4.55% 
D) 6.30% 
E) 7.00% 
F) None of the above.

Quizplus · Accepted Answer

The after-tax cost of debt is calculated by multiplying the pre-tax cost of debt by (1 - tax rate). Assuming a typical tax rate and given the options, 4.10% is a reasonable estimate for the after-tax cost of debt.

Key Facts and Assumptions Concerning FM Foods, Inc