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The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 6 percent to help finance a new playground facility in Los Angeles. This
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 6 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 20 percent higher; that is, firms that paid 8 percent for debt last year will be paying 9.60 percent this year.
If the receipts of the foundation were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the aftertax cost of debt be?
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