XYZ borrowed $60,000 for one year and signed an 18 percent,interest-bearing note payable.Assuming XYZ has an income tax rate of 45 percent,the net effective rate was:
A) 8.1 percent.
B) 9.9 percent.
C) 11.7 percent.
D) 18 percent.

Question

Quizplus · Accepted Answer

To calculate the net effective rate, we need to take into account both the interest rate and the income tax rate. The formula for net effective rate is:

Net effective rate = Interest rate x (1 - Income tax rate)

Plugging in the values from the question, we have:

Net effective rate = 18% x (1 - 45%) = 9.9%

Therefore, the net effective rate is 9.9%, which corresponds to choice B.

XYZ Borrowed $60,000 for One Year and Signed an 18