LL Incorporateds currently outstanding 6 percent coupon bond

LL Incorporated\'s currently outstanding 6 percent coupon bonds have a yield to maturity of 6 percent. LL believes it could sell new bonds that would provide a similar yield to maturity. If its marginal tax rate is 31 percent, what is LL\'s after-tax cost of debt? Express your answer in percentage (without the % sign) and round it to two decimal places.

Solution

After tax cost of debt:

= Yield to maturity×(1-Tax rate)

= 6%×(1-31%)

= 4.14%

Hence, correct option is 4.41%