A firm has outstanding debt with a coupon rate of 9%,nine years maturity,and a price of $1000 per $1000 face value.What is the after-tax cost of debt if the marginal tax rate of the firm is 30%?

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated as follows:
After-tax cost of debt = pre-tax cost of debt x (1 - marginal tax rate)
Pre-tax cost of debt is the coupon rate of 9%, therefore:
After-tax cost of debt = 9% x (1 - 0.3) = 6.3%
Therefore, the answer is B) 6.3%.

A Firm Has Outstanding Debt with a Coupon Rate of 9%,nine