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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Cost of Debt Financing

Stinson Corporation’s cost of debt financing is 6%. Its tax rate is 30%.

Required:

Calculate the after-tax interest rate. (Vote: Round answer to one decimal place.)

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

To calculate:

The After tax interest rate.

Explanation

The after tax interest rate is calculated as follows:

After tax Interest rate = Interest ...

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