A firm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. Because interest is tax deductible, the relevant cost of debt used to calculate a firm's WACC is the cost of debt, rd(1T). The cost of debt is used in calculating the WACC because we are interested in maximizing the value of the firm's stock, and the stock price depends on it is important to emphasize that the cost of debt is the interest rate on debt, not because our primary concern with the cost of capital its use in capital budgeting decisions. The rate at which the firm has borrowed in the past is because we nee the cost capital. For these reasons, the 1 on outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the . The on the company's -term debt is generally used to calculate the cost of debt because, more often than not, the capital is being raised to fund -term projects. Quantitative Problem: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and an 11% coupon, semiannual payment ( $55 payment every 6 months). The bonds currently sell for $844.87. If the firm's marginal tax rate is 25%, what is the firm's aftertax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places. % A firm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. Because interest is tax deductible, the relevant cost of debt used to calculate a firm's WACC is the cost of debt, rd(1T). The cost of debt is used in calculating the WACC because we are interested in maximizing the value of the firm's stock, and the stock price depends on it is important to emphasize that the cost of debt is the interest rate on debt, not because our primary concern with the cost of capital its use in capital budgeting decisions. The rate at which the firm has borrowed in the past is because we nee the cost capital. For these reasons, the 1 on outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the . The on the company's -term debt is generally used to calculate the cost of debt because, more often than not, the capital is being raised to fund -term projects. Quantitative Problem: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and an 11% coupon, semiannual payment ( $55 payment every 6 months). The bonds currently sell for $844.87. If the firm's marginal tax rate is 25%, what is the firm's aftertax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places. %
