Wang Corp has been told by its investment bankers that it would have to pay 8% interest to successfully sell new bonds. The company has bonds outstanding, issued 5 years ago, on which the company is paying 12% annual interest. The company’s tax rate is 40%. What is its after-tax cost of debt if it decides to borrow new funds? Answer a. 8% b. 12% c. 4.8% d. 3.2%

Wang Corp has been told by its investment bankers that it would have to pay 8% interest to successfully sell new bonds. The company has bonds outstanding, issued 5 years ago, on which the company is paying 12% annual interest. The company’s tax rate is 40%. What is its after-tax cost of debt if it decides to borrow new funds?
Answer
a. 8%
b. 12%
c. 4.8%
d. 3.2%



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