LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8

Finance Jun 02, 2021

LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8.6%. LL 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 LL's after-tax cost of debt? Round your answer to two decimal places.

Expert Solution

Computation of the after tax cost of debt:-

After tax cost of debt = Yield to maturity * (1 - Tax rate)

= 8.6% * (1 - 25%)

= 6.45%

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