A firm has outstanding debt with a coupon rate of 8%, seven years maturity, and a price of $1,000. What is the after-tax cost of debt if the marginal tax rate of the firm is 35%?

Question

Quizplus · Accepted Answer

A) YTM = coupon rate in this case since the bond is selling at par. Therefore, 11ea84dc_f526_e640_9a63_1fa72cac5c72_TB1316_11_TB1316_11 Therefore, after-tax cost = 0.08 × (1 - 0.35) = 0.052 or 5.2%.

A Firm Has Outstanding Debt with a Coupon Rate of 8