The after-tax cost of debt ________ the before-tax cost of debt for a firm that has a positive marginal tax rate.

Name: The after-tax cost of debt ________ the before-tax cost of debt for a firm that has a positive marginal tax rate.
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Question

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The after-tax cost of debt is always less than the before-tax cost of debt for a firm with a positive marginal tax rate because the interest payments on debt are tax-deductible. Therefore, the firm's tax liability is reduced, resulting in a lower effective cost of debt.

The After-Tax Cost of Debt ________ the Before-Tax Cost of Debt