What would the aftertax cost of debt be

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Reference no: EM132023499

The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 5 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 10 percent higher; that is, firms that paid 7 percent for debt last year will be paying 7.70 percent this year.

a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 10 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 20 percent because of involvement in political activities), what would the aftertax cost of debt be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Reference no: EM132023499

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