A firm has a pre-tax cost of debt of 8.5%. If the firm has a marginal tax rate of 30%, what is its effective cost of debt?

Name: A firm has a pre-tax cost of debt of 8.5%. If the firm has a marginal tax rate of 30%, what is its effective cost of debt?
Brand: Quizplus
Rating: 4.8 (44 reviews)

Question

Quizplus · Accepted Answer

The effective cost of debt is calculated as the pre-tax cost of debt multiplied by (1 - tax rate). Therefore, 8.5% * (1 - 0.30) = 5.95%, which rounds to 6.0%.

A Firm Has a Pre-Tax Cost of Debt of 8