Refer to Exhibit 7A.1.What is the expected after-tax cost of this debt issue? Do not round your intermediate calculations.

Question

Quizplus · Accepted Answer

The expected after-tax cost of the debt issue can be calculated using the formula for after-tax cost of debt: After-tax cost of debt = (Interest rate)(1 - Tax rate). Without the specific details from Exhibit 7A.1, a general approach to find the after-tax cost of debt involves taking the interest rate the company pays on its debt and adjusting it for the tax savings due to interest expense being tax-deductible. The correct answer (D) suggests that the specific calculations based on the data from Exhibit 7A.1 lead to an after-tax cost of 6.64%.