If two firms have the same yield to maturity on their publicly traded debt then the firm with the ________ will have a ________ after-tax cost of debt.

Question

Quizplus · Accepted Answer

If two firms have the same yield to maturity on their publicly traded debt, the firm with the lower tax rate will have a lower after-tax cost of debt. This is because the interest paid on debt is tax-deductible, so a lower tax rate means a higher portion of the interest expense is effectively subsidized by the government, reducing the actual cost for the firm.

If Two Firms Have the Same Yield to Maturity on Their