1. To calculate the after-tax cost of debt, multiply the before tax cost of debt by ____?
a) (1+T)
b) (1-T)
2. Revive co can borrow funds at an interest rate of 9.7% for a period of five years. Its marginal federal plus state tax rate is 40%. Revive after tax cost of debt is _____
a) 6.4
b) 5.53
c) 9.7
d) 5.82
3. Revive Co. has outstanding 15-year noncallable bonds with a face value of $1000. These bonds have a current market price of $1,136.50, a coupon rate of 12%, and annual coupon payments. The company faces a tax rate of 40%. If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt?
A) 7.03
b) 5.5
c) 7.33
d) 6.11