In: Finance
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.
________%
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%