Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 6.8%. Its tax rate is 40%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. Note: Assume that the firm will always be able to utilize its full interest tax shield. The effective after-tax cost of debt is %. (Round to four decimal places.)
Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 6.8%. Its tax rate is 40%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. Note: Assume that the firm will always be able to utilize its full interest tax shield. The effective after-tax cost of debt is %. (Round to four decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Laurel, Inc., has debt outstanding with a coupon rate of
5.8%
and a yield to maturity of
6.8%.
Its tax rate is
40%.
What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons.Note: Assume that the firm will always be able to utilize its full interest tax shield.
Transcribed Image Text:Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 6.8%. Its tax rate is 40%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons.
Note: Assume that the firm will always be able to utilize its full interest tax shield.
...
The effective after-tax cost of debt is
%. (Round to four decimal places.)
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