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5 June, 23:24

Use the information below to determine before-tax cost of debt financing of bond s

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  1. 5 June, 23:56
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    We calculate before-tax cost of debt financing of bonds is described below.

    Explanation:

    The cost of debt capital reflects the risk level. If your company has maximum chance of defaulting on its debt, the lender will assign a higher interest rate to the loan, and thus the total cost of the debt will be higher. Before-tax Cost of Debt Capital = Coupon Rate on Bonds The cost of debt is the effective interest rate for a company which pays on its debts. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking taxes into account. It's the cost of debt, such as bonds and loans, among others. Divide the company's after-tax cost of debt by the result to calculate the company's before-tax cost of debt. In this example, if the company's after-tax cost of debt equals $830,000. You'll then divide $830,000 by 0.71 to find a before-tax cost of debt of $1,169,014.08. The cost of debt before and after taxes lies in the fact that interest expenses are deductible.
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