If the before-tax cost of debt is 9% and the firm has a 34% marginal tax rate, the after-tax cost of debt is 5.94%.

Question

Quizplus · Accepted Answer

To find the after-tax cost of debt, we need to subtract the tax savings from the before-tax cost of debt. The tax savings is calculated by multiplying the before-tax cost of debt by the marginal tax rate (0.34 in this case). Therefore, the after-tax cost of debt is 9% - (9% * 0.34) = 5.94%.

If the Before-Tax Cost of Debt Is 9% and the Firm