The outstanding bonds of the purple fiddle are priced at $898 and mature in nine years. these bonds have a 6 percent coupon and pay interest annually. the firm's tax rate is 35 percent. what is the firm's after tax cost of debt?

Answer : 4.34 %

Explanation: The effective interest rate a company pays on its debt obligation is called cost of debt. The cost of debt is denoted by [k]x_{d}[/tex] . As there is a tax shield available on debt interest it is generally calculated by subtracting the marginal tax rate from before tax cost of debt .

.

where,

c= coupon payment = 1000 * 6% = 60

p = current market price = $898

t= marginal tax rate

therefore :-

                    =

                    = 4.34 %

a

b

b

a

c

b

d

d

none of these are correct, as they are all sources of american law

a