Problem 1. Calculate the Cost of debt before tax.

Jefferson co. has a $3 million loan with a 5% interest rate and a $500,000 loan with a 6% rate. The effective interest rate on its debt is 5.2%. The companys tax rate is 30%. Thus, its cost of debt is 3.64%, or 5.2% * (1 - 30%).

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Problem 2. Calculate the Cost of debt after tax

John and July Corp. only debt is a bond it has issued with a 6% rate. If its tax rate is 40%, what is the cost of debt after tax?

interest X (1 - tax rate) = answer