Ask Question
13 April, 23:54

The Holmes Company's currently outstanding bonds have a 8% coupon and a 12% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.

+2
Answers (1)
  1. 14 April, 00:17
    0
    after tax cost of debt 7.8%

    Explanation:

    The after tax would be:

    cost of debt (1 - taxes) = after-tax cost of debt

    the cost of debt will be the 12% yield because the current and new debt will be effectively financed with this rate.

    .12 x (1-0.35) = 0.078 = 7.8%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The Holmes Company's currently outstanding bonds have a 8% coupon and a 12% yield to maturity. Holmes believes it could issue new bonds at ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers