The before tax cost of debt for a firm which has a marginal tax rate of 40

# The before tax cost of debt for a firm which has a

• 47
• 97% (99) 96 out of 99 people found this document helpful

This preview shows page 12 - 15 out of 47 pages.

13) The before-tax cost of debt for a firm, which has a marginal tax rate of 40 percent, is 12 percent. The after-tax cost of debt is ________.A) 4.8 percentB) 6.0 percentC) 7.2 percentD) 12 percentAnswer: CDiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: Previous EditionAACSB Tag: Analytic Skills
14) The specific cost of each source of long-term financing is based on ________ and ________ costs.DDiff: 2Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: Previous EditionAACSB Tag: Reflective Thinking Skills15) When determining the after-tax cost of a bond, the face value of the issue must be adjusted tothe net proceeds amounts by considering ________.BDiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-06Question Status: Previous EditionAACSB Tag: Analytic Skills16) If a corporation has an average tax rate of 40 percent, the approximate, annual, after-tax cost of debt for a 15-year, 12 percent, \$1,000 par value bond, selling at \$950 is ________.CDiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: RevisedAACSB Tag: Analytic Skills
17) If a corporation has an average tax rate of 40 percent, the approximate annual, after-tax cost of debt for a 10-year, 8 percent, \$1,000 par value bond selling at \$1,150 is ________.A) 3.6 percentB) 4.8 percentC) 6 percentD) 8 percentAnswer: ADiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: Previous EditionAACSB Tag: Analytic Skills18) The approximate after-tax cost of debt for a 20-year, 7 percent, \$1,000 par value bond sellingat \$960 (assume a marginal tax rate of 40 percent) is ________.ADiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: RevisedAACSB Tag: Analytic Skills19) Debt is generally the least expensive source of capital. This is primarily due to ________.CDiff: 1Topic: After-Tax Cost of DebtLearning Obj.: LG 3Learning Outcome: F-14Question Status: Previous EditionAACSB Tag: Reflective Thinking Skills