Question

To understand the advantage of debt capital from a tax perspective in the United States, determine the before-tax and approximated after-tax weighted average costs of capital if a project is funded 35% for the year.

Answer 1

Debt capital can provide tax advantages in the United States. The tax deductibility of interest payments can lower a company's tax liability and result in a lower cost of capital compared to equity. The specific costs of capital depend on the project's financing structure.

Step-by-step explanation:

In the United States, debt capital can provide an advantage from a tax perspective. The tax deductibility of interest payments on debt can lower a company's tax liability, resulting in a lower cost of capital compared to equity capital. To determine the before-tax and approximated after-tax weighted average costs of capital for a project funded 35% for the year, you would need more specific information about the project's financing structure, such as the proportions of debt and equity used. However, generally speaking, the after-tax weighted average cost of capital for debt can be lower due to the tax benefits.