A formula of after-tax component cost of debt is___________?
Correct answer: A. Interest rate-tax savings
- A. Interest rate-tax savings
- B. Marginal tax-required return
- C. Interest rate + tax savings
- D. Borrowing cost + embedded cost
Explanation
After-tax cost of debt equals the interest rate less the tax saving on interest, commonly written as kd(1 − tax rate). Therefore, interest rate minus tax savings is the matching option.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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