company has dept outstanding with a coupon rate of 6.0% and a yield to maturity of 7.9%. Its tax rate is 38% assume the dept has annual coupon. What is the company after tax cost of dept?
To calculate the after-tax cost of debt for the company, we need to consider the tax-deductibility of interest payments. The after-tax cost of debt takes into account the tax savings from deducting interest expenses.
The formula to calculate the after-tax cost of debt is:
After-tax Cost of Debt = Yield to Maturity * (1 - Tax Rate)
In this case, the yield to maturity is 7.9% and the tax rate is 38%.
So, substituting these values into the formula:
After-tax Cost of Debt = 7.9% * (1 - 0.38)
After-tax Cost of Debt = 7.9% * 0.62
After-tax Cost of Debt = 4.898%
Therefore, the company's after-tax cost of debt is 4.898%.