A firm has an outstanding bond paying a coupon rate of 12%. The firm's tax rate is 34%. If the yield-to-maturity on the bond is 6.18%, what is the firm's after-tax cost of debt? Select one: A. 12.00% B. 4.08% C. 7.92% D. 6.18%

A firm has an outstanding bond paying a coupon rate of 12%. The firm's tax rate is 34%. If the yield-to-maturity on the bond is 6.18%, what is the firm's after-tax cost of debt? Select one: A. 12.00% B. 4.08% C. 7.92% D. 6.18%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

A firm has an outstanding bond paying a coupon rate of 12%. The firm's tax rate is 34%. If the yield-to-maturity on the bond is 6.18%, what is the firm's after-tax cost of debt?

Select one:

12.00%

4.08%

7.92%

6.18%

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