Use the following information to answer the question(s)below.
Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 40%.
-Luther's after-tax debt cost of capital is closest to:
A)4.2%
B)5.4%
C)7.0%
D)9.8%

Question

Quizplus · Accepted Answer

A)Effective after-tax interest rate = r(1 - T_c)= .07(1 - .40)= .042 or 4.2%

Use the Following Information to Answer the Question(s)below