The fact that the after-tax cost of debt is lower than the pretax cost of debt implicitly assumes that interest expense can be:
A)deducted.
B)margined.
C)refinanced.
D)salvaged.
E)ignored.

Question

Quizplus · Accepted Answer

The fact that the after-tax cost of debt is lower than the pretax cost of debt assumes that interest expense can be deducted from taxable income, which reduces the amount of income subject to tax. Therefore, the after-tax cost of debt is lower than the pretax cost of debt.

The Fact That the After-Tax Cost of Debt Is Lower