The Holmes Company's currently outstanding bands have an 8% coupon and a 139 yield to maturity

Finance Dec 24, 2020

The Holmes Company's currently outstanding bands have an 8% coupon and a 139 yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is Holmes after-tax cost of debt Round your answer to two decimal places.

Expert Solution

Yield to maturity = 13%

Marginal tax rate = 25%

After-tax rate = Yield to maturity * (1 - 0.25)

After-tax rate = 13% * 0.75

After-tax rate = 9.75%

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