Cost of Debt Financing}

Crackle Company instituted an aggressive plan to lower its cost of financing over the next decade. Currently, Crackle's cost of debt financing is \(8 \%\), its cost of equity financing is \(14 \%\), and its tax rate is \(35 \%\). Crackle currently has \(\$ 2,500,000\) of debt.

\section*{Required:}
1. Calculate the after-tax cost amount of interest expense.
2. How does the tax effect of interest expense affect financial leverage?
OBJECTIVE \section*{Brief Exercise