Reasonable estimate for after-tax cost of debt

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Reference no: EM131586052

1. To calculate the after-tax cost of debt, multiply the before tax cost of debt by ____?

a) (1+T)

b) (1-T)

2. Revive co can borrow funds at an interest rate of 9.7% for a period of five years. Its marginal federal plus state tax rate is 40%. Revive after tax cost of debt is _____

a) 6.4

b) 5.53

c) 9.7

d) 5.82

3. Revive Co. has outstanding 15-year noncallable bonds with a face value of $1000. These bonds have a current market price of $1,136.50, a coupon rate of 12%, and annual coupon payments. The company faces a tax rate of 40%. If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt?

A) 7.03

b) 5.5

c) 7.33

d) 6.11

Reference no: EM131586052

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