question archive Calculate the after-tax cost of debt for the Wallace Clinic, a for-profit healthcare provider, assuming that the coupon rate set on its debt is 11 percent and its tax rate is: a
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Calculate the after-tax cost of debt for the Wallace Clinic, a for-profit healthcare provider, assuming that the coupon rate set on its debt is 11 percent and its tax rate is:
a. 0 percent
b. 20 percent
c. 30 percent
It is given in the question that :
Before tax Cost of Debt = 11%
(a)
Tax Rate = 0%
After-tax Cost of Debt = 11% * (1 - 0%)
After-tax Cost of Debt = 11%
(b)
Tax Rate = 20%
After-tax Cost of Debt = 11% * (1-0.20)
= 0.11 (0.80)
After-tax Cost of Debt = 0.088 or 8.80%
(c)
Tax Rate = 30%
After-tax Cost of Debt = 11% * (1-0.30)
= 0.11 * (0.70)
After-tax Cost of Debt = 0.077 or 7.70%