Question

If the income tax rate applicable to a firm is 35% and the pre-tax cost of debt is 10%, what is the after-tax cost of debt?

Answer 1

the after tax cost of debt is 6.5%

Step-by-step explanation:

The computation of the after tax cost of debt is shown below:

After tax cost of debt is

= Before tax cost of debt × (1 - tax rate)

= 10% × (1 - 0.35)

= 10% × 0.65

= 6.5%

Hence, the after tax cost of debt is 6.5%

We simply applied the above formula so that the correct value could come

And, the same is to be considered