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use the cost of servicing the debt, but then credit back any tax deduction/credit/etc that you have from the debt. A big example is home mortgages. If I pay $1800 a month, and $1500 of it is interest, and my net marginal tax rate is 33% (making stuff up here), I can deduct the $1500 a month in interest from my income, and effectively, the government is giving me a check for $500 (33% marginal rate times $1500 monthly interest deduction = $500 tax benefit of the loan). Therefore, my net after-tax cost of debt isn't the $1500 i pay in interest every month, it's $1000 ($1500 - $500).
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A firm has an expected return on equity of 16 and an aftertax cost of debt of 8 What debtequity ratio should be used in order to keep the weighted average cost of capital at 12?
7
How does the cost of debt differ from the cost of capital?
Cost of debt considers only the cost that goes to the debtholders. Cost of capital considers debt and equity costs both.
How do you calculate the after tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
How do you calculate beta of debt?
Nice
Why is the coupon rate a bad estimate of a firm's cost of debt?
A coupon rate is not a good estimate of a firm's cost of debt, as it is only a reflection of the firm's cost of debt when bonds were issued, not the current cost of debt. It's not representative of the yield in the current market.
How do you calculate cost of dedt?
Calculate cost of debt for what??????
A firm has an expected return on equity of 16 and an aftertax cost of debt of 8 What debtequity ratio should be used in order to keep the weighted average cost of capital at 12?
7
How to calculate capital charge?
To calculate capital charge, you can use the formula: Capital Charge = Cost of Equity × Equity + Cost of Debt × Debt. Cost of equity is usually estimated using the Capital Asset Pricing Model (CAPM) or Dividend Discount Model (DDM), while cost of debt is based on the interest rate on debt. By multiplying the respective cost by the amount of equity and debt, you can determine the capital charge.
How do you calculate the pretax cost of debt?
Divide the company's effective tax rate by 100 to convert to a decimal. For example, if the company pays 29 percent in taxes, divide 29 by 100 to get 0.29. Subtract the company's tax rate expressed as a decimal from 1. In this example, subtract 0.29 from 1 to get 0.71. Divide the company's after-tax cost of debt by the result to calculate the company's before-tax cost of debt. In this example, if the company's after tax cost of debt equals $830,000, divide $830,000 by 0.71 to find a before-tax cost of debt of $1,169,014.08.
For the purpose of calculating the cost of capital the capital components are what?
The principal components taken into account to calculate the cost of capital are the following: The dollar cost of debt, the dollar cost of preferred stock, and the dollar cost of common stock.
Difference between cost of debt and marginal cost of debt?
Cost of debt is the original cost of borrowing including original interest rate Marginal cost of debt is new loan which extended from the previous one, the interest of which is called marginal cost of debt.
Why is the after-tax cost of debt rather than the before-tax cost used to calculate the weighted average cost of capital?
Because interest expense is deductible. Because interest expense is deductible.
How does the cost of debt differ from the cost of capital?
Cost of debt considers only the cost that goes to the debtholders. Cost of capital considers debt and equity costs both.
What is the maximum after tax 401k contribution?
The 415c limit is $49,000. This includes all pretax, aftertax, roth, catch up contributions, and employer match. There's not a maximum specifically for aftertax.
How do you calculate the book value of debt?
the principle of debt + the interest accrued
How do you calculate the after-tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
How do you calculate the after tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
