A firm has outstanding debt with a coupon rate of 8%, nine 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 40%?

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B) YTM = coupon rate in this case since the bond is selling at par. Therefore, 11ea84dc_f526_e641_9a63_97a52087cc61_TB1316_11_TB1316_11 Therefore, after-tax cost = 0.08 × (1 - 0.4) = 4.8%.

A Firm Has Outstanding Debt with a Coupon Rate of 8