Liverpool International Corporation's marginal tax rate is 35%. It can issue three-year bonds with a coupon rate of 4.5%. The bonds can be sold now at their par value of $1,000. Determine the appropriate after-tax cost of debt for Dublin International to use in a capital budgeting analysis.

Question

Quizplus · Accepted Answer

- First determine the after-tax coupon payment: $1,000 x 4.5% = $45
- Then determine the after-tax cost of debt: $45 x (1 - 0.35) / $1,000 = 0.0293 or 2.93%.

Liverpool International Corporation's Marginal Tax Rate Is 35