Answer:
after-tax cost odf debt 0.035 = 3.5%
Explanation:
the debt provides a tax shield for companies, as the interest expense, decrease the net income. Interest decrease income and therefore, the tax income associate with the income.
So the cost of debt with taxes is lower, because it lower the income tax expense
the formula will be:
cost of debt ( 1 - tax-rate)
in this case:
0.05 ( 1 - 0.3) = 0.05 x 0.7 = 0.035
