What is the value of cost of capital after tax in a perpetual bond sold at par, coupon rate of interest…
For a perpetual bond sold at par, the after-tax cost of debt is Kd = I(1 - t) = 7% x (1 - 0.50) = 3.5%.
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What is the value of cost of capital after tax in a perpetual bond sold at par, coupon rate of interest being 7 per cent. Assuming that firm pay tax at a 50 per cent rate?
Answer and explanation
Correct answer D
For a perpetual bond sold at par, the after-tax cost of debt is Kd = I(1 - t) = 7% x (1 - 0.50) = 3.5%.
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UGC NET Management