PackMan Corporation has semiannual bonds outstanding with nine years to maturity and the bonds are currently priced at $754.08. If the bonds have a coupon rate of 7.25 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 30 percent? Round your intermediate calculation to two decimal places & final percentage answer to three decimal places.
A) 7.050%
B) 8.225%
C) 11.750%
D) 12.095%

Question

Quizplus · Accepted Answer

The after-tax cost of debt is the coupon rate times (1 - tax rate). In this case, the coupon rate is 7.25% and the tax rate is 30%, so the after-tax cost of debt is 7.25% * (1 - 0.30) = 5.075%.

PackMan Corporation Has Semiannual Bonds Outstanding with Nine Years to Maturity