AFTER-TAX COST OF DEBT The Holmes Company\'s currently outstanding bonds have a

Question

AFTER-TAX COST OF DEBT

The Holmes Company's currently outstanding bonds have a 7% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.

_______%

AFTER-TAX COST OF DEBT

The Holmes Company's currently outstanding bonds have a 7% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.

_______%

Explanation / Answer

after-tax cost of debt is equal to=YTM(1-tax rate)

which is equal to

=14(1-0.4)

=8.4%

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