The coupon rate on a debt issue is 6%. If the yield to maturity on the debt is 9%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 34%

Weighted average cost of capital= 5.94%

Explanation:

The cost of debt is the required rate of return payable to investors in the debt instruments of a company. These investors include providers of long term debt finance to the company.

The cost of debt finance can determined by working out the yield to maturity on debt with adjustment for tax.  

It is noteworthy that debt finance affords the company a tax savings advantage because interest expense incurred on the use of debt of are tax deductible expense.

After-tax cost of debt = (1- Tax rate) × before-tax cost of debt

Before tax cost of debt = 9%

Tax rate = 34%

After-tax cost of debt = (1-0.34) × 9% = 5.94%

After-tax cost of debt = 5.94%

Weighted average cost of capital= 5.94%