# To calculate the after-tax cost of debt. multiply the before-tax cost of debt by To determine the after-tax price of financial obligation, increase the before-tax price of financial obligation by liquid and electric company (WPC) can borrow money at mortgage of 10.20percent for a time period of four years. Its marginal federal-plus-state income tax price is 45percent. WPC’s after-tax price of financial obligation is (curved to two decimal places). Currently, liquid and electric company (WPC) has 15-year noncallable bonds with a face value of \$1,000 which can be outstanding. These bonds have actually an ongoing selling price of \$1,329.55 per relationship, carry a coupon price of 12percent, and circulate yearly voucher repayments. The business incurs a federal-plus-state income tax price of 45percent. If WPC would like to issue brand new financial obligation, just what will be an acceptable estimate because of its after-tax price of financial obligation (curved to two decimal places)? O 4.02percent O 4.47percent O 3.58percent O 5.14percent
By learning from your errors i = 8.12percent
1329.55 = 120/i*(1-1/(1+i)^15) + 1000/(1+i)^15
income tax price = 45percent
income tax price = 45percent

After income tax price of financial obligation = 8.12%*0.55 = 4.47percent

2. Before income tax price of financial obligation = 10.2percent
3. cost of relationship = C/i*{1-1/(1+i)^n} + P/(1+i)^n
After income tax price of financial obligation = 10.2*0.55 = 5.61percent