If a company's bonds bear an interest rate of 8%, the tax rate is 30%, and the company's assets are generating an after-tax return of 7%, then the leverage would be:

Name: If a company's bonds bear an interest rate of 8%, the tax rate is 30%, and the company's assets are generating an after-tax return of 7%, then the leverage would be:
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Question

Quizplus · Accepted Answer

The company's after-tax cost of debt is 8% * (1 - 30%) = 5.6%. Since the company's assets are generating an after-tax return of 7%, the leverage is positive.

If a Company's Bonds Bear an Interest Rate of 8