Final answer:
False. The cost of debt is not equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.
Step-by-step explanation:
The statement is false. The cost of debt is not equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.
The cost of debt is determined by the interest rate on the debt. It is the percentage rate that the borrower pays to the lender for the use of the borrowed funds. The average coupon rate on all outstanding debt is the average interest rate on the existing debt, which is separate from the cost of new debt.
For example, if a company issues new debt at a coupon rate of 6% and the marginal tax rate is 30%, the after-tax cost of debt would be 4.2% (6% * (1 - 0.3)), not 70% (1 - 0.3).