Answered

Welcome to Westonci.ca, where you can find answers to all your questions from a community of experienced professionals. Our platform connects you with professionals ready to provide precise answers to all your questions in various areas of expertise. Our platform provides a seamless experience for finding reliable answers from a network of experienced professionals.

Using the following variables, calculate an organization's cost of debt on a $500,000 bond.Rt: 1% credit-risk rate: 5% t: 15% a. $30,000 b. $25,500 c. $29,550 d. $4,500

Sagot :

Tundexi

Answer:

b. $25,500

Explanation:

$500,000 bond

Rt: 1%

Credit-risk rate: 5%

t: 15%

Cost of debt = 1% + 5%

Cost of debt = 0.01 + 0.05

Cost of debt = 0.06

After tax cost of debt = Cost of debt *(1 - t)

After tax cost of debt = 0.06*(1 - 0.15)

After tax cost of debt = 0.06*0.85

After tax cost of debt = 0.051

Cost of debt = After tax cost of debt * $500,000

Cost of debt = 0.051*(500,000)

Cost of debt = $25,500

So, the organization's cost of debt on the $500,000 bond is $25,500

Thanks for stopping by. We strive to provide the best answers for all your questions. See you again soon. Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. We're glad you chose Westonci.ca. Revisit us for updated answers from our knowledgeable team.