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Juno is a single man in the 2 5 % income - tax bracket. He is interested in borrowing $ 7 5 , 0 0
Juno is a single man in the incometax bracket. He is interested in borrowing $ to pay for a new luxury car. To finance the purchase, either he can borrow the $ through the auto dealer at an annual interest rate of or he can take a $ second mortgage on his home. The best annual rate he can get and has qualified for on the second mortgage is He has also qualified for the auto loan.
If he borrows from the auto dealer, the interest on this loan will not be tax deductible for federal tax purposes but interest on the second mortgage would indeed be tax deductible.
Using the formula: Aftertax cost of debt rd x T
Calculate Juno's after tax cost of debt.
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