A firm is issuing new bonds that pay 8 percent annual interest. The market required annual...

A firm is issuing new bonds that pay 8 percent annual interest. The market required annual rate of return on these bonds is 13 percent. The firm has an interest subsidy rate of 25%

what is the before tax cost of debt?

Expert Solution

Question: A firm is issuing new bonds that pay 8 percent annual interest. The market required annual rate of return on these bonds is 13 percent. The firm has an interest subsidy rate of 25%. what is the before-tax cost of debt?

Answer:

The cost of debt is the effective interest rate a company pays on its debts. It is the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company’s cost of debt before taking taxes into account. The solution of the above question is herein below:

Annual Interest = 8%

Annual rate of return (bonds) = 13%

Interest subsidy Rate = 25%

Before tax of debt = 8%

jeff jeffy answered 1 year ago

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