Logan holds a 7% interest-bearing debt instrument in Glow Co. Glow Co.'s tax rate is 27%...
Logan holds a 7% interest-bearing debt instrument in Glow Co. Glow Co.'s tax rate is 27% and Logan is in a 45% tax bracket. Which of the following statements is correct? Multiple Choice The after-tax cost of the debt instrument is 5.11% to Glow Co. and the after-tax value to Logan is 3.85%.
The after-tax cost of the debt instrument is 5.11% to Glow Co. and the after-tax value to Logan is 3.15%.
The after-tax cost of the debt instrument is 1.89% to Glow Co. and the after-tax value to Logan is 3.15%.
The after-tax cost of the debt instrument is 7% to Glow Co. and the after-tax value to Logan is 7%.
Homework Answers
Answer:-
The after-tax cost of the debt instrument is 5.11% to Glow Co. and the after-tax value to Logan is 3.85%.
Explanation :-
Glow co. = 7% - 27% (7%) = 5.11%
Logan = 7% - 45% (7%) = 3.85%
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Logan holds a 7% interest-bearing debt instrument in Glow Co.
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