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What would the after tax cost of debt be

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Question - The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new play ground facility in Los Angeles. This year the cost of debt is 18 percent higher; that is, firms that paid 10 percent for debt last year will be paying 11.80 percent this year.

Required -

a. If the Goodsmith Charitable Foundation borrowed money this year, what would the after tax cost of debt be, based on their cost last year and the 18 percent increase?

b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 30 percent because of involvement in political activities), what would the after tax cost of debt be?

Reference no: EM133169068

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