If the after-tax cost of debt for Apple is 10%, what is the pretax cost if...

Question

Question

If the after-tax cost of debt for Apple is 10%, what is the pretax cost if they are in the 30% tax bracket?

business finance

Answer 1

Answer #1

After tax cost of debt = Pretax cost of debt x ( 1 – Tax rate )

So, 10 = Pretax cost of debt x (1 – 0.30 )

So, Pretax cost of debt = 10 / ( 1 – 0.30 )

= 10 / 0.70

= 14.29%

So, the pretax cost of debt is 14.29%

Answer 2

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