Terrier Company is in a 35 percent tax bracket and has a bond outstanding that yields 9 percent to maturity.
a. What is Terrier’s aftertax cost of debt? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
b. Assume that the yield on the bond goes down by 1 percentage point, and due to tax reform, the corporate tax rate falls to 20 percent. What is Terrier’s new aftertax cost of debt? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
c. Has the aftertax cost of debt gone up or down from part a to part b?
It has gone up
It has gone down