Question
Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house,...
Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a
30-year
mortgage. David will borrow
$210,000
from a bank, and to repay the loan he will make
360
monthly payments (principal and interest) of
$1,180.79
per month over the next
30
years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the
30%
tax bracket.
a. What is the before-tax interest rate (per year) on David's loan?
b. What is the after-tax interest rate that David is paying?
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