What tax rate was used in the example calculations for Prescott Corporation's after-tax cost of debt?

The tax rate used in the example calculations for Prescott Corporation's after-tax cost of debt is 21%. This percentage is significant because the after-tax cost of debt is determined by taking the interest expense on the debt and adjusting it for the tax shield that debt provides. This is done through the following formula:

After-tax cost of debt = Interest rate × (1 - Tax rate)

By applying the 21% tax rate in the calculations, the after-tax cost of debt effectively reflects the true cost to the corporation after accounting for the tax deductibility of interest expenses. This rate aligns with the corporate tax rates that were in effect during the year when the calculations were made, ensuring that the company's financial assessments and capital budgeting processes are accurate and realistic for decision-making purposes. Using a tax rate different from 21% would result in an incorrect calculation of the after-tax cost of debt, affecting factors such as investment evaluations and the overall cost of capital for Prescott Corporation.