What is the overall after-tax cost of the debt financing

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A recent leveraged buyout was financed with $50M. This amount comprised of partner’s equity capital of $12M, $20M unsecured debt borrowed at 7% from one bank, and the remainder from another bank at 8.5%. What is the overall after-tax cost of the debt financing if you expect the firm’s marginal tax rate to be 33%?

(a) 2.55% (b) 7.71% (c) 3.34% (d) 5.17%

Reference no: EM13928643

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