The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year

Question

The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 5 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 5 percent higher; that is, firms that paid 7 percent for debt last year will be paying 7.35 percent this year. (a) If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on its cost last year and the 5 percent increase? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Cost of debt % (b) If the receipts of the foundation were found to be taxable by the IRS (at a rate of 15 percent because of involvement in political activities), what would the aftertax cost of the debt be? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Cost of debt %

Explanation / Answer

Kd= yield(1 - T)

yield = 5% * 1.05 = 5.25%

Kd = 5.25%(1 - 0) = 5.25

-------------------------------

Kd = 5.25%(1 - 0.15)

= 4.46 %

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.