The outstanding debt of Flight Centre (FLT)trades with a yield to maturity of 8%. The tax rate of FLT is 25%. What is the effective cost of debt of FLT?

Question

Quizplus · Accepted Answer

The formula for effective cost of debt is: 
Effective cost of debt = Yield to maturity * (1 - Tax rate)

Plug in the given values: 
Effective cost of debt = 8% * (1 - 0.25) = 6%

Therefore, the best choice is B.

The Outstanding Debt of Flight Centre (FLT)trades with a Yield