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

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

 

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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%