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How are the interest rate and cost of debt capital used

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LST Trading Company will purchase a $20,000 ten-year-life asset. Company managers have decided to put $10,000 down now from retained earnings and borrow $10,000 at an interest rate of 6%. The simplifi ed loan repayment plan is $600 in interest each year, with the entire $10,000 principal paid in year 10. ( a ) What is the after-tax cost of debt capital if the effective tax rate is 42%? ( b ) How are the interest rate and cost of debt capital used to calculate WACC?

Reference no: EM13882221

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