Laurel, Inc., has debt outstanding with a coupon rate of 5.9% and a yield to mat
ID: 2796031 • Letter: L
Question
Laurel, Inc., has debt outstanding with a coupon rate of 5.9% and a yield to maturity of 6.9%. Its tax rate is 38%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons.
Laurel, Inc., has debt outstanding with a coupon rate of 5.9% and a yield to maturity of 6.9%. Its tax rate is 38%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. The effective after-tax cost of debt is 1%. (Round to four decimal places.)Explanation / Answer
effective (after-tax) cost of debt=YTM(1-tax rate)
=6.9(1-0.38)
which is equal to
=4.278%
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