The tax rate After-tax cost of debt is 60% when their normal cost rate is 40%.
What is bond?
A bond is a type of asset in which the issuer owes the holder a debt and is required to repay the principle of the bond as well as interest over a specified period of time, depending on the terms. In which the Interest is often paid at regular intervals.
Computation of After-tax cost of debt:
According to the given information,
Before tax, cost of debt = 10%, and
Tax rate = 40%
[tex]\text{After-Tax Cost of Debt} = (1- \text{Tax Rate}) \times \text{Before-Tax Cost of Debt}\\\\\text{After-Tax Cost of Debt} = (1-0.4) \times 10\%\\\\\text{After-Tax Cost of Debt} = 6\%[/tex]
Therefore, the after-tax cost of debt is 6%.
Learn more about debt, refer to:
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