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A firm has $7 Billion in debt outstanding with a yield to maturity of 9%.

A firm has $7 Billion in debt outstanding with a yield to maturity of 9%. The firm pays taxes at the rate of 34%. What is the firm's effective (after-tax) cost of debt? [Enter your answer as a percentage rounded to two decimal places.]  

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Answer #1

After tax cost of debt = Pre-tax cost of debt(1 - t)

Pre-tax cost of debt = Yield to Maturity

So,

After-tax cost of debt = 0.09(1 - 0.34)

After-tax cost of debt = 5.94%

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