le 5 Homework ssignment Module 5 Homeworlk Assignment Score

le 5 Homework ssignment: Module 5 Homeworlk Assignment Score: 0.0 Save Submit Assignment for Gradin Question 1 of 20 Check My Work (3 remaining) Questions Problem 10.01 Click here to read the eBook: Cost of Debt, ra(1-T AFTER-TAX COST OF DEBT The Holmes Company\'s currently outstanding bonds have a 8% coupon and a 12% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes\'s after-tax cost of debt? Round your answer to two decimal places 10. 12. 13. 14. 15. 16 Check My Work (3 remaining) esc 2 4

Solution

After tax cost of debt = yield to maturity * ( 1- tax rate) = 12% * (1-35%) = 7.8%