LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.2%.

FIN - 650 --- Problem 9-02 (After-Tax Cost of Debt)

LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.2%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

________%

Solutions

Expert Solution

LL's Bond Yield to Maturity = 7.2%

marginal tax rate = 25%

LL's After-tax cost of Debt = Yield to Maturity*(1- Marginal tax rate)

LL's After-tax cost of Debt = 7.2%*(1-0.25)

LL's After-tax cost of Debt = 5.40%

jeff jeffy answered 2 years ago

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