Calculating Honeywell's Effective Cost of Debt

What is Honeywell's effective cost of debt?

Based on the data provided, how can we calculate Honeywell's effective cost of debt?

Answer:

Honeywell's effective cost of debt is 1.80%.

To calculate Honeywell's effective cost of debt, we first need to understand the concept of effective cost of debt. The effective cost of debt is the interest rate that a company pays on its debt after accounting for taxes.

In the case of Honeywell, debt investors demand a return of 3.3%. Honeywell's corporate tax rate is 30%, and the average personal tax rate is 22%. By using the formula for calculating effective cost of debt: Effective Cost of Debt = Interest Rate x (1 - Tax Rate), we can determine the effective cost of debt for Honeywell.

Plugging in the values, we get: 3.3% x (1 - 0.454) = 1.80%. Therefore, Honeywell's effective cost of debt is 1.80%.