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Chapter 4: Q11-4BP (page 363)

Telecom Systems can issue debt yielding 9 percent. The company is in a 30 percent bracket. What is its aftertax cost of debt?

Short Answer

Expert verified

After tax cost of debt of the company is $0.063.

Step by step solution

01

Cost of debt

The cost of debt is the return that an organization gives to its creditors and debt holders. These capital providers should be made up for any risk exposure that comes with lending to an organization.

02

Calculation of after tax cost of debt

Aftertaxcostofdebt=Costofdebt脳(1-Taxrate)=0.09脳(1-0.3)=0.09脳0.7=0.063

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