Telecom Systems can issue debt yielding 7 percent. The company is in a 30 percent bracket. What is its aftertax cost of debt

After tax cost of debt = 0.049 or 4.9%

Explanation:

The after tax cost of debt is the rate of debt after deducting the benefit from tax savings due to interest payments required by the debt which are deductible before calculating tax. The after tax cost of debt is somewhat an effective cost of debt. It is calculated using the following formula,

After tax cost of debt = Cost of debt * (1 - tax rate)

After tax cost of debt = 0.07 * (1 - 0.3)

After tax cost of debt = 0.049 or 4.9%

consumer credit. an advantage is that it allows consumers to afford expensive goods and services now, increasing their standard of living. however, a disadvantage is that it creates a trap for debt, if people do not have self control, they may see themselves filing personal bankruptcy.