Question

Debt financing is 9%, and its tax rate is 21%. Required: Calculate the after-tax interest rate. Enter the amounts as a percent, rounded to two decimal places.

a) 7.11%
b) 11.32%
c) 17.91%
d) 6.69%

Answer 1

Debt financing is the process of raising capital for a business by borrowing money. To calculate the after-tax interest rate, we can use the formula: After-Tax Interest Rate = Debt Financing Interest Rate * (1 - Tax Rate). Applying the formula, the after-tax interest rate in this case is 7.11%.

Step-by-step explanation:

Debt financing is the process of raising capital for a business by borrowing money. In this case, the interest rate on the debt financing is 9%. To calculate the after-tax interest rate, we need to take into account the tax rate of 21%.

To calculate the after-tax interest rate, we can use the formula: After-Tax Interest Rate = Debt Financing Interest Rate * (1 - Tax Rate). Applying the formula, we get: After-Tax Interest Rate = 9% * (1 - 0.21) = 7.11%.

Therefore, the correct answer is option a) 7.11%.