RatedrillAfter-tax cost of debt
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A company's bonds yield 3% before tax, and its marginal tax rate is 16%. What is its after-tax cost of debt?
What this problem teaches
The formula: After-tax cost = rd × (1 - t).
A hint if you get stuck
Interest is tax deductible: after-tax cost = rd × (1 - tax rate).
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