Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be
A. 7.20%
B. 7.40%
C. 17.14%
D. 17.24%
Answer: Option A
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Investment is the _______________.
A. net additions made to the nation’s capital stocks
B. person’s commitment to buy a flat or house
C. employment of funds on assets to earn returns
D. employment of funds on goods and services that are used in production process
Financial Management is mainly concerned with ______________.
A. All aspects of acquiring and utilizing financial resources for firms activities
B. Arrangement of funds
C. Efficient Management of every business
D. Profit maximization
The primary goal of the financial management is ____________.
A. to maximize the return
B. to minimize the risk
C. to maximize the wealth of owners
D. to maximize profit
In his traditional role the finance manager is responsible for ___________.
A. proper utilisation of funds
B. arrangement of financial resources
C. acquiring capital assets of the organization
D. efficient management of capital
To calculate the after-tax component cost of debt, we need to take into account the tax savings due to the deductibility of interest expenses from taxable income. The formula for the after-tax cost of debt is:
After-tax cost of debt = Pre-tax cost of debt × (1 - Tax rate)
Given that the interest rate is 12% and the tax rate is 40% (1 - 0.40 = 0.60), we can calculate the after-tax component cost of debt:
After-tax cost of debt = 12% × (1 - 0.40) = 12% × 0.60 = 7.20%
Therefore, the correct answer is option A. 7.20%.