Busing Manufacturing has a new bond issue that will net the firm $1,069,000.The bonds have a $1,000,000 par value,pay interest annually at a 12% coupon rate,and mature in 10 years.The firm has a marginal tax rate of 34%.The after-tax cost of the debt issue is:

Question

Quizplus · Accepted Answer

The after-tax cost of debt is the coupon rate times (1 - the marginal tax rate). In this case, the after-tax cost of debt is 12% * (1 - 0.34) = 7.92%.

Busing Manufacturing Has a New Bond Issue That Will Net