On January 1,Year 1,Brown Co.issued bonds with a face value of $200,000,a stated rate of interest of 10%,and a 20-year term to maturity.The bonds were issued at face value.If Bluefield's tax rate is 40%,what is the after-tax cost of borrowing related to these bonds for Year 1?
A)$12,000
B)$8,000
C)$20,000
D)$28,000

Question

Quizplus · Accepted Answer

Annual interest expense = Face value of $200,000 × 10% = $20,000
After-tax cost of debt = Total interest expense of $20,000 × (1.0 - 0.40)= $12,000