LL Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 14%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

The after-tax cost of debt of LL Incorporated rounded to decimal places is 9.80%

Explanation:

First and foremost, the before tax cost of debt is the yield to maturity of 14%

Having determined the before-tax cost of debt, the after-tax cost of debt is the before-tax cost of debt adjusted for marginal tax rate of 30% as computed thus:

after-tax cost of debt=before-tax cost of debt * (1-t)

the t is the tax rate of 30% which is also 0.3

after tax cost of debt=14% * (1-0.3)

=14%*0.7=9.80%