Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $208,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,376.57 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30% tax bracket. a. What is the before-tax interest rate (per year) on David's loan? b. What is the after-tax interest rate that David is paying? a. The before-tax interest rate (per year) on David's loan is %. (Round to two decimal places.)
Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $208,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,376.57 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30% tax bracket. a. What is the before-tax interest rate (per year) on David's loan? b. What is the after-tax interest rate that David is paying? a. The before-tax interest rate (per year) on David's loan is %. (Round to two decimal places.)
Chapter6: Deductions And Losses: In General
Section: Chapter Questions
Problem 25DQ
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Transcribed Image Text:Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $208,000 from a bank, and to repay the loan he will make 360
monthly payments (principal and interest) of $1,376.57 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30%
tax bracket.
a. What is the before-tax interest rate (per year) on David's loan?
b. What is the after-tax interest rate that David is paying?
a. The before-tax interest rate (per year) on David's loan is
%. (Round to two decimal places.)
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ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT