Question

Outstanding debt of Home Depot trades with a yield to maturity of 5%. The tax rate of Home Depot is 40%. What is the effective cost of debt of Home Depot

Answer 1

Answer:

3.00%

Explanation:

The effective cost of debt of Home Depot = 5%*(1 - 0.40)

The effective cost of debt of Home Depot = 0.05*0.60

The effective cost of debt of Home Depot = 0.03

The effective cost of debt of Home Depot = 3.00%