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A business in the 45 tax bracket is considering borrowing

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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Finance Basics: A business in the 45 tax bracket is considering borrowing

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