Question
An overview of a firm's cost of debt: The _ is the interest rate that a firm pays on any new debt financing. A. before-tax
An overview of a firm's cost of debt:
The _ is the interest rate that a firm pays on any new debt financing.
A. before-tax cost of debt
B. after-tax cost of debt
Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 10.20% for a period of eight years. Its marginal federal-plus-state tax rate is 30%. OCPs after-tax cost of debt is _ (rounded to two decimal places).
A. 8.21%
B. 7.14%
C. 10.20%
D. 6.78%
At the present time, Omni Consumer Products Company (OCP) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 30%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.)
A. 2.19%
B. 2.74%
C. 3.29%
D. 3.15%
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