# Cost of Debt A firm’s before-tax cost of debt, rd, is the interest rate that the firm must pay o

Cost of Debt A firm&#39;s before-tax cost of debt, rd, is the interest rate that the firm must pay on -Select- debt. Because interest is tax deductible, the relevant cost of -Select- debt used to calculate a firm&#39;s WACC is the -Select- cost of debt, rd (1 – T). The -Select- A cost of debt is used in calculating the WACC because we are interested in maximizing the value of the firm&#39;s stock, and the stock price depends on -Select- Acash flows. It is important to emphasize that the cost of debt is the interest rate on-Select- debt, not -Select- debt because our primary concern with the cost of capital is its use in capital budgeting decisions. The rate at which the firm has borrowed in the past is -Select- Abecause we need to know the cost of -Select- capital. For these reasons, the -Select- A on outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the -Select- A. The -Select on the company&#39;s -Select- 4 -term debt is generally used to calculate the cost of debt because more often than not, the capital is being raised to fund -Select- -term projects. Quantitative Problem: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a \$900 face value and a 12% coupon, semiannual payment (\$54 payment every 6 months). The bonds currently sell for \$845.87. If the firm&#39;s marginal tax rate is 40%, what is the firm&#39;s after-tax cost of debt? Round your answer to 2 decimal places. Do not round intermediate calculations. % Check My Work (2 remaining)

PLACE YOUR ORDER TO GET STARTEDThe post Cost of Debt A firm’s before-tax cost of debt, rd, is the interest rate that the firm must pay o appeared first on Essay Gem.