Answer : 4.34 %
Explanation: The effective interest rate a company pays on its debt obligation is called cost of debt. The cost of debt is denoted by [k]x_{d}[/tex] . As there is a tax shield available on debt interest it is generally calculated by subtracting the marginal tax rate from before tax cost of debt .
.
[tex]k_{d}=\frac{c}{p}\times\left ( 1-t \right ) [/tex]
where,
c= coupon payment = 1000 * 6% = 60
p = current market price = $898
t= marginal tax rate
therefore :-
= [tex]\frac{60}{898}\times \left ( 1-0.35 \right )[/tex]
= 4.34 %
