Answered

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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

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