A Corporation Borrows $1,000,000 at 10 Percent Annual Rate of Interest

question 104

Multiple Choice

A corporation borrows $1,000,000 at 10 percent annual rate of interest. The firm has a 40 percent taxrate. The yearly, aftertax cost of this debt is ___________ .

• A) $166,667
• B) $100,000
• C) $40,000
• D) $60,000

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Definitions:

Process Cost System

A method of accounting used in manufacturing where costs are accumulated and assigned to batches of products, suitable for homogeneous products.

Equivalent Units

A concept used in process costing that converts partially completed units into a number of full units, facilitating cost allocation.

Job Order Cost System

An accounting system used to accumulate costs associated with a specific job or order, helping in tracking the expenses related to individual projects or jobs.

Process Cost System

A method of costing used to assign costs to units of production in industries where the products are indistinguishable from each other and produced in a continuous flow, such as in manufacturing of chemicals or food.