The after-tax cost of debt is the interest rate on the debt multiplied by (100% minus the incremental income tax rate). Example, if a company's debt has an annual interest rate of 12% and the combined federal and state income tax rate is 27%, the after tax cost of debt would be computed as 12% interest rate x (100% minus 27% tax rate) or 12% x 73% = 8.7%
Discuss the concept of a firm's target capital structure. How might this be determined?
Why might the M&M Theory be a relevant starting point for discussing capital structure theory?
What ratios are used to measure a company's debt. How are they different?