Outstanding debt of Home depot trades with a yield... Please answer the financial accounting question Outstanding debt of Home Depot trades with a yield tomaturity of 10%. The tax rate of Home Depot is 35%.What is the effective cost of debt of Home Depot?A. 7.8%.B. 6.5%.C. 9.75%.D. 10.08%.

Step 1: Define Cost of DebtThe cost of debt can be explained as the rate of return that is demanded…

Answered: Outstanding debt of Home Depot trades…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 12EP

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Outstanding debt of Home Depot trades with a yield to maturity of 6%.The tax rate of Home Depot is 30%.What is the effective cost of debt of Home Depot? A. 5.25% B. 4.2% C. 5.04% D. 4.62%
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Cost of debt
2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 12.50% for a period of four years. Its marginal federal-plus-state tax rate is 25%. PRC's after-tax cost of debt is (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If PRC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 3.38% 3.53% 2.94% 2.35%

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Outstanding debt of Home Depot trades with a yield to maturity of 10%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot? A. 7.8%. B. 6.5%. C. 9.75%. D. 10.08%.