The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to helpfinance a new playground facility in Los Angeles. Thisyear the cost of debt is 25 percent higher; that is, firmsthat paid 10 percent for debt last year will be paying12.50 percent this year.a. If the Goodsmith Charitable Foundation borrowedmoney this year, what would the aftertax cost of debtbe, based on their cost last year and the 25 percentincrease? (Do not round intermediate calculations.Input your answer as a percent rounded to 2 decimalplaces.)Aftertax cost of debt%b. If the receipts of the foundation were found to betaxable by the IRS (at a rate of 30 percent because ofinvolvement in political activities), what would theaftertax cost of debt be? (Do not round intermediatecalculations. Input your answer as a percent roundedto 2 decimal places.)Aftertax cost of debt%

Cost of Debt: It is the cost of raising capital from debt instruments to the issuer. For debt…

Answered: a. If the Goodsmith Charitable…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter15: Choice Of Business Entity—other Considerations

Section: Chapter Questions

Problem 68P

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