Answer:
the effective cost of debt of Home Depot is 3.25 %.
Explanation:
Effective Cost of debt is the cost of debt after the tax shield.
In terms of the Tax Act, interest expense attract a deduction known as tax shield from income tax and this lowers the cost of debt financing as compared to equity financing.
Effective cost of debt = interest × ( 1 - tax shield)
= 5.00 % × (1 - 0.35)
= 3.25 %
