If the Firm Uses the After-Tax Cost of New Debt

question 72

True/False

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

---

Definitions:

Cognitive-behavioral Approach

A psychological treatment method that addresses dysfunctional emotions, behaviors, and cognitions through a goal-oriented, systematic process.

Hallucinatory Voices

Auditory hallucinations where an individual hears voices without an external stimulus, often associated with psychiatric disorders.

Resist

To strive against an action, influence, or movement; to withstand the force or effect of something.

Unpleasant Sensations

Feelings or perceptions that are subjectively perceived as negative or uncomfortable.