Answer:
48%
Explanation:
The after-tax cost of debt is the interest paid on debt less any income tax savings due to deductible interest expenses
Coupon Rate = 7.5%
Years to maturity = 24
NPER = 48 (years to maturity x 2)
PMT = 37.5 ((Face value x coupon rate ) /2)
Face value = $1,000
PV = $1,010
Rate = 3.71%
Yield = Rate x 2
Yield = 3.71 x 2 = 7.41%
Pre-tax cost of debt = 7.41%
After tax cost of debt = 7.41%(1 - tax rate )
After tax cost of debt = 7.41% ( 1 - 0.35 )
After tax cost of debt = 0.048165 OR 48%
