Westbrook's Painting Co

question 26

Multiple Choice

Westbrook's Painting Co.plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually.The company's marginal tax rate is 25%, but Congress is considering a change in the corporate tax rate to 15%.By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

• A) 0.57%
• B) 0.63%
• C) 0.70%
• D) 0.77%
• E) 0.85%

---

Definitions:

Not-For-Profit Entity

A not-for-profit entity is an organization that operates for charitable, educational, or social purposes rather than generating profit for shareholders or owners.

Donor Retains Control

A situation where a donor gives a gift or assets but maintains a level of decision-making power or influence over those assets or their management.

Provision for Bad Debts

An accounting concept that represents an allowance for receivables that may not be collectible.

Uncollectible and Reduced Accounts

Refers to accounts receivable that a business deems unlikely to be collected and therefore reduces their value on the financial statements.