Apple's 9 percent annual coupon bond has 10 years until maturity and the bonds are selling in the market for $790. If the firm's after-tax cost of debt is 8 percent, what was the firm's tax rate?

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated as the yield to maturity (YTM) multiplied by (1 - tax rate). Given the bond's coupon rate and market price, the YTM can be calculated and compared to the after-tax cost of debt to find the tax rate. Solving for the tax rate using the given values results in approximately 37.74 percent.

Apple's 9 Percent Annual Coupon Bond Has 10 Years Until