Question

Ladder Works has debt outstanding with a coupon rate of 6 percent and a yield to maturity of 6.8 percent. What is the after-tax cost of debt if the tax rate is 21 percent? Assume all interest is tax deductible.

A) 5.37 percent

B) 4.86 percent

C) 4.74 percent

D) 5.29 percent

E) 5.13 percent

Answer 1

After-tax cost of debt=yield to maturity*(1-tax rate)

=6.8*(1-0.21)

which is equal to

=5.37%(Approx).