A corporation borrows $1,000,000 at 10 percent annual rate of interest. The firm has a 40 percent tax rate. The yearly, after-tax cost of this debt is ________.
A) $40,000
B) $60,000
C) $100,000
D) $166,667

Question

Quizplus · Accepted Answer

The yearly interest cost is $1,000,000 * 10% = $100,000. After applying the 40% tax rate, the after-tax cost is $100,000 * (1 - 0.40) = $60,000.

A Corporation Borrows $1,000,000 at 10 Percent Annual Rate of Interest