Answer :
The yield to maturity on the company's existing bonds would be a reasonable estimate for a company's before-tax cost of debt.
️Cost of Debt definition
The cost of debt is the cost when your business has debt. What is usually included in the cost of debt is bonds and debt repayment costs. We can also call this type of cost as the cost of debt.
When you make a loan at a financial or banking institution, you will be required to pay additional fees such as interest, this fee is what we call the cost of debt, which is different from the principal debt.
As another example, companies that issue bonds to obtain additional funds will usually repay the loan funds in the form of interest. That interest is called the cost of debt.
The owner of the company will usually find out the calculation of the cost of debt after paying taxes. This is because after paying taxes, the cost of debt becomes smaller.
How Cost of Debt Works
Cost of debt is a cost that will be calculated periodically. The reason is because these costs will be able to affect operations and expansion plans carried out in the future.
Usually the company does not only have one debt. There can be more than one debt, depending on the plans owned by the company.
The calculation of the cost of debt is also done before taking on new debt. From this calculation, companies will know whether they can afford to take on new debt, while the old debt is still there.
When the company turns out to have a low amount of debt, the company has the opportunity to get new debt. Conversely, if the amount of debt is too high, the company will delay or stop the plan.
In addition to the company's internal parties, the cost of debt is a cost that investors or creditors or banks want to know about providing loans.
Investors will assess the risk of the company from the amount of debt. Investors will think twice or even avoid companies with high debt.
Meanwhile, the bank will assess whether the company can be given a loan. The bank certainly wants the loan it provides to be repaid by the company. This can be seen from the amount of debt costs from the company.
In this case the company will present an annual interest rate that indicates the amount of their debt in the financial statements.
Learn more about before-tax cost of debt at https://brainly.com/question/29332946.
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