The before tax cost of debt for a firm which has a marginal tax rate of 30% is 12%. Therefore the cost of debt that should be used in calculating the cost of capital for capital budgeting purposes is:

a. 3.6%
b. 6%
c. 8.4%
d. 30%

Option C is correct answer

Explanation:

We have the following details:

Cost of Debt (Kd) = 12%

Tax Rate = 30%

Cost of debt for discounting Capital Project is Post Tax Cost of debt

The reason of this is that the Interest paid on debt is eligible for tax deduction, Hence Post Tax cost of debt will be used for discounting the project cashflows

Discount rate = Cost of Debt * ( 1 - Tax rate )

= 12% * (1 - 0.30)

= 12% * (0.70)

= 8.4%  is the cost of debt that should be used in calculating the cost of capital for capital budgeting purposes.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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these are the four factors that influence enterpreneurship development

1. economic development

2. culture

3.technological development

4. education