﻿ Afirm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. because interest is tax  , 22.06.2019 03:00, autumn8668

# Afirm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. because interest is tax deductible, the relevant cost of debt used to calculate a firm's wacc is the cost of debt, rd (1 â€“ t). the cost of debt is used in calculating the wacc because we are interested in maximizing the value of the firm's stock, and the stock price depends on cash flows. it is important to emphasize that the cost of debt is the interest rate on debt, not debt because our primary concern with the cost of capital is its use in capital budgeting decisions. the rate at which the firm has borrowed in the past is because we need to know the cost of capital. for these reasons, the on outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the . the on the company's -term debt is generally used to calculate the cost of debt because more often than not, the capital is being raised to fund -term projects. quantitative problem: 5 years ago, barton industries issued 25-year noncallable, semiannual bonds with a \$1,600 face value and a 8% coupon, semiannual payment (\$64 payment every 6 months). the bonds currently sell for \$845.87. if the firm's marginal tax rate is 40%, what is the firm's after-tax cost of debt? round your answer to 2 decimal places. do not round intermediate calcu ### Other questions on the subject: Business Afirm is analyzing two possible capital structureslong dash30 and 50 percent debt ratios. the firm has total assets of​ \$5,000,000 and common stock valued at​ \$50 per share. the firm has a marginal tax rate of 40 percent on ordinary income. if the interest rate on debt is 7 percent and 9 percent for the 30 percent and the 50 percent debt​ ratios, respectively, the amount of interest on the debt under each of the capital structures being considered would be​ Afirm has an operating profit of​ \$300,000, interest of​ \$35,000, and a tax rate of 40 percent. the firm has an afterminustax cost of debt of 5 percent and a cost of equity of 15 percent. the​ firm's target capital structure is set at a mix of 40 percent debt and 60 percent equity. assuming this as the optimum capital​ structure, the value of the firm is​ Avicorp has a \$ 14.5 million debt issue​ outstanding, with a 5.9 % coupon rate. the debt has​ semi-annual coupons, the next coupon is due in six​ months, and the debt matures in five years. it is currently priced at 95 % of par value. a. what is​ avicorp's pre-tax cost of​ debt? note: compute the effective annual return. b. if avicorp faces a 40 % tax​ rate, what is its​ after-tax cost of​ debt? ​note: assume that the firm will always be able to utilize its full interest tax shield.
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Afirm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. because in...

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