Question

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7 Problem 11-5 Aftertax cost of debt [LO11-3] Calculate the aftertax cost of debt under each of the following conditions. (Do not round im answers as a percent rounded to 2 decimal places.) points skopped Aftertax Cost of Debt согрогate Tax Rate Yield % 50% 11% а. edook 25 % % 7.0% b. 64% 21 % % Hint C. Print References Mci Graw <Prev 7 of 10 Ne Esc

Answer 1

(a)-After-tax cost of debt at 5.00% Yield

The After-tax cost of debt = Yield x (1 – Tax rate)

= 5.00% x (1 – 0.11)

= 5.00% x 0.89

= 4.45%

(b)-After-tax cost of debt at 7.00% Yield

The After-tax cost of debt = Yield x (1 – Tax rate)

= 7.00% x (1 – 0.25)

= 7.00% x 0.75

= 5.25%

(c)-After-tax cost of debt at 6.40% Yield

The After-tax cost of debt = Yield x (1 – Tax rate)

= 6.40% x (1 – 0.21)

= 6.40% x 0.79

= 5.06%