Answer (D) is correct . The after-tax cost of debt is the cost of debt times the quantity one minus the tax rate. For example, the after-tax cost of a 10% bond is 7% [10% × (1 – 30%)] if the tax rate is 30%.
Answer (A) is incorrect because The after-tax cost of debt is the cost of debt times the quantity one minus the tax rate.
Answer (B) is incorrect because The after-tax cost of debt is the cost of debt times the quantity one minus the tax rate.
Answer (C) is incorrect because The cost of debt times the marginal tax rate equals the tax savings from issuing debt.
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