FIN 370 Version 8 Week 4 DQ

The after-tax cost of debt is the interest rate on the debt multiplied by (100% minus the incremental income tax rate).

 Example, if a company's debt has an annual interest rate of 12% and the combined federal and state income tax rate is 27%, the after tax cost of debt would be computed as

 12% interest rate x (100% minus 27% tax rate) or 12% x 73% = 8.7%

Discuss the concept of a firm's target capital structure.  How might this be determined?

Why might the M&M Theory be a relevant starting point for discussing capital structure theory? 

What ratios are used to measure a company's debt.  How are they different?