A firm has outstanding debt with a coupon rate of 5%, ten years maturity, and a price of $1,000. What is the after-tax cost of debt if the marginal tax rate of the firm is 35%?

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C) YTM = coupon rate in this case since the bond is selling at par. Therefore, 11ea84dc_f527_0d52_9a63_75fd33b44ef1_TB1316_11_TB1316_11 Therefore, after-tax cost = 0.05 × (1 - 0.35) = 3.3%.

A Firm Has Outstanding Debt with a Coupon Rate of 5