Junction Inc.'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 $1000.Determine the appropriate after-tax cost of debt for Dublin International to use in a capital budgeting analysis.

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated as follows:

Coupon rate = 4.5%
Marginal tax rate = 35%
After-tax cost of debt = Coupon rate x (1 - Marginal tax rate)
= 4.5% x (1 - 0.35)
= 2.93%

Therefore, the appropriate after-tax cost of debt for Dublin International to use in a capital budgeting analysis is 2.93%. The answer is C.