I need some pretty easy math help! I am stumped on what should be a very simple problem?

Question

I am trying to find after-tax cost of debt with the formula Kd(1-T)
Kd is supposed to equal the interest rate on new debt (9%) and the T is supposed to equal the marginal tax rate (40%)
does this mean that the formula should look like this: 9%(1-40%)?
And if so, how do I figure out the answer for this?

Answer 1

.09(1 - .4)
.09(.6)
.054

Answer 2

I'm afraid your formula is invalid. Marginaal tax rate refers to the tax rate you are in because of your income. It could be anywhere from 0 to 35% in the USA. I do not see what your income has to do with after tax cost of a debt.

I have never seen the symbol Kd used for interest rate. It is usually i or r. Are K and d to different characters or is this Ksub d?

I suggest you go back to wherever you found the formula and make sure you kave copied it correctly and completely.

Answer 3

Yes, you are right.

So, it's 9%*(1-40%) =

.09 * (1 - 0.40)=
.09 * 0.60=
.054

Converted to a percentage, that would be 5.4%. Now, the only time you will tax effect debt is if the interest on that debt is deductible, ie home mortgage interest. You would not tax effect debt such as credit card debt.

Answer 4

Solve for y by way of combining like phrases on both aspect if the = mark. ( get your letters on one aspect, and the numbers at the different) y + one million = -four + 6 ( (bear in mind plus & minus indicators opposite once they move the = signal, so: y = -four + 6 + (-one million), y = 6 - four - one million; (6 - four - one million = one million) so, y = one million

Answer 5

9% = 0.09
40% = 0.40

so

(0.09)(1 - 0.40)
= (0.09)(0.60)
= 0.054
= 5.4%