Question

Waste Disposal Systems has an aftertax cost of debt of 9.0 percent. With a tax rate of 34 percent, what can you assume the yield is on the debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Answer 1

The yield on debt before taxes, given an after-tax cost of debt of 9 percent and a tax rate of 34 percent, is calculated to be 13.64%.

Step-by-step explanation:

The subject of the question pertains to the calculation of the yield on debt before taxes given the after-tax cost of debt and the tax rate. The question asks us to determine the yield on debt when the after-tax cost is 9 percent and the tax rate is 34 percent. This can be calculated using the formula for the after-tax cost of debt, which is the yield on the debt multiplied by (1 - tax rate).

To find the original yield, we can rearrange the formula as follows:

Yield on debt = After-tax cost of debt / (1 - Tax rate)

Plugging in the given values:

Yield on debt = 0.09 / (1 - 0.34) = 0.09 / 0.66 = 0.13636, or 13.64% when rounded to two decimal places.

Therefore, the yield on the debt, before taxes, is 13.64%.