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Computing After-tax Cost of Debt

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Calculate the after-tax cost of debt for the following situations:

Pre-Tax Cost Corporate Tax Rate After-Tax Cost
a 15% 22%
b 12% 15%
c 8% 18%

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Solution Summary

Given the pre-tax cost of debt and the company's tax rate, this solution illustrates how to compute the after-tax cost of debt.

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Because interest expense is tax-deductible, the Government in effect "rebates" part of the interest expense to you. Thus, the actual amount paid is the excess of the full ...

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