Question

A business in the 45% tax bracket is considering borrowing money at 10%.
a. What is the after-tax interest rate on the debt?
b. What is the after-tax interest rate if only half of the interest expense is allowed as a tax deduction?
c. Would your answer change if the firm is losing money now and does not expect to have taxable income for three years?


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  • CreatedApril 15, 2015
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