Explore BrainMass

Explore BrainMass

    Before and after tax cost of debt

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Assume that Dell issued 30-year bonds, 8% coupon rate, semiannual, 7 years ago. The bond currently sells for 108% of face value. The company's tax rate is 35%.

    1. What is the pretax cost of debt?
    2. What is the after-tax cost of debt?
    3. Which is more important and why?

    © BrainMass Inc. brainmass.com October 10, 2019, 2:04 am ad1c9bdddf

    Solution Preview

    1. The pretax cost is the YTM on the existing bonds. The YTM is the discounting rate that will make the present value of interest and ...

    Solution Summary

    The solution explains how to calculate the before and after tax cost of debt and which is more important