O'Malley Retirement homes has $5 million of debt outstanding with a coupon rate of 8.2%.Currently, the yield to maturity on these bonds is 7.3%.If the firm's tax rate is 34%, what is the after-tax cost of debt?

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated using the formula:

After-tax cost of debt = Yield to maturity x (1 - Tax rate)

Plugging in the given values, we get:

After-tax cost of debt = 7.3% x (1 - 0.34)
After-tax cost of debt = 4.805%

Rounding off to two decimal places, we get the answer as 4.75%. Therefore, the correct choice is C.

O'Malley Retirement Homes Has $5 Million of Debt Outstanding with a Coupon