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What is the pretax cost of debt for a firm in the 35% tax ...

Resolved Question:

What is the pretax cost of debt for a firm in the 35% tax bracket that has an 8% after-tax cost of debt?
Submitted: 8 years ago.
Category: Finance
Expert:  Scott replied 8 years ago.
Hi there,

The equation is:

Kd = kd(1-t), where t is the tax rate, kd is the pretax cost, and Kd is the after tax cost...

Plug in what we know:

0.08 = k(1-0.35)

Simplify:

0.08 = 0.65k

Divide by 0.65:

k = 0.123

k = 12.3%

Let me know if you have any questions,
Scott
Customer: replied 8 years ago.
here is another question :(I will have several more.)
John deposits \$2,000 per year at the end of the year for the next 20 years into an IRA account that pays 6%. How much will John have on deposit at the end of 20 years?
Expert:  Scott replied 8 years ago.
Hi there,

Great!

The formula for the future value of an annuity is:
FV = PMT * (((1 + i)n - 1) / i)

Plug in our values:
FV = 2000*(((1+0.06)^20 - 1)/ 0.06)

FV = 73571.18