Question

What is the advantage of calculating the cost of debt after taxes?

Athere is no advantage of calculating cost of debt after taxes
Bthe cost of debt after tax is more expensive than cost before taxes the cost of debt reduces when calculated after taxes
Cthe interest rates on cost of debt increase with increase in taxes
Dthe tax rate charged for the business is lowered

Answer 1

The correct option is D.
The advantage of calculating the cost of debt after taxes is that the tax rate will be reduced compared to if the calculation was done before taxes. The reduced tax rate arises from the fact that, the company can claim its interest as a business expense and this result in tax savings.