If a corporation pays a tax rate of 21 percent,the after-tax cost of debt for a 10-year,8 percent,$1,000 par value bond selling at $1,150 is ________.

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated using the formula: After-tax cost of debt = Yield to Maturity (YTM) * (1 - Tax Rate). First, calculate the YTM for the bond, which is approximately 5.96%. Then, apply the tax rate: 5.96% * (1 - 0.21) = 4.71%.

If a Corporation Pays a Tax Rate of 21 Percent,the