pre-tax cost of debt X (1 – tax rate). Thus the pre-tax cost of debt = after tax cost of debt / (1 – tax rate). In this case we have.
The cost of debt is the amount of money that a company pays to use debt as a source of capital. Debt is usually inform of bonds or loans among others. Since the interest on debt is tax deductible,we.
After-Tax Cost of Debt : – The calculated value of the after-tax cost of debt to be used for determining the WACC is 3.6%. Assuming that the given bond sells at the face value, the coupon rate of the bond (i.e. 6%) will be the.
Which one of these will increase a firm’s after-tax cost of debt? A Decrease in the market value of the firm?s outstanding bonds. A Decrease in the firm’s tax rate. An increase in the bond’s credit.
Debt-Equity Ratio is a leverage ratio. It has an inverse relationship with weighted average cost of capital. Increase in Debt-Equity ratio reduces the firm’s weighted average cost of capital.
After-tax cost of debt – Fitbite, Inc. currently has an outstanding bond that pays interest annually, a coupon rate of 6% and 5 years until Maturity. If it is in the 35 % marginal tax rate, what is.
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– The capital structure of a company is composed of various components. These components indicate the various sources of finances for a business. The component in the capital structure includes.
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weighted average cost of capital = weight of debt * after-tax cost of debt + (1 – weight of debt) * cost of equity Since cost of debt is usually lower than the cost of equity, the more a firm finances.