After-tax cost of debtBella Wans is interested in buying a new motorcycle. She has decided to borrow money to pay the $25,000 purchase price of the bike. She is in the 25% federal income tax bracket. She can either borrow the money at an interest rate of 5% from the motorcycle dealer, or she could take out a second mortgage on her home. That mortgage would come with an interest rate of 6%. Interest payments on the mortgage would be tax deductible for Bella, but interest payments on the loan from the motorcycle dealer could not be deducted on Bellas federal tax return.

a. Calculate the after-tax cost of borrowing from the motorcycle dealership.

b. Calculate the after-tax cost of borrowing through a second mortgage on Bellas home.

c. Which source of borrowing is less costly for Bella?

d. Is there any other consideration that Bella ought to think about when deciding which loan to take out to pay for the motorcycle?

Font Tools Table Window Help Document1 148% les Charts SmartArt Review Styles AaBbc Title Subtitle Heading 2 Normal No spacing Heading P9-6 Alter-tax cost of debt Bella wans is interested in buying a new motorcycle. She the decided to borrow money to pay the $25,000 purchase price of the bike. She is in 25% ederal income tax bracket. She can either borrow the money at an interest rate of 5% from the motorcycle dealer, or she could take out a second mortgage on her home. That mortgage would come with an interest rate of 6%. Interest payments on the mortgage would be tax deductible for Bella, but interest payments on the loan from the motorcycle dealer could not be deducted on Bella's federal tax return. a. Calculate the after-tax cost of borrowing from the motorcycle dealership. b. Calculate the after-tax cost of borrowing through a second mortgage on Bella's home. c. Which source of borrowing less costly for Bella? d. Is there any other consideration that Bella to think about when deciding which loan to take pay for the motorcycle? the information shown in the following weights Webster Company has compiled table