Consider the following characteristics of a firm:
Stock price $60 -
Annual dividend $1 -
Debt rate 12%
Equity floatation cost 5%
Tax rate 40%
Preferred Stock Par value $100 -
What is the firm's after tax cost of debt?
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A. B. C. D. E. F.C
A firm's after tax cost of debt may be calculated using the following formula: After Tax Cost of Debt = Cost of Debt x (1 - Tax Rate). In this case the After Tax Cost of Debt = 12% x (1 - 40%) = 12% x 60% = 7.2%.