If a Corporation Issued $9,000,000 in Bonds Which Pay 5

question 96

Multiple Choice

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

• A)$4,500,000
• B)$135,000
• C)$450,000
• D)$315,000

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Definitions:

Fair Market Value

The price that a willing buyer and a willing seller agree upon when both parties have reasonable knowledge of the relevant facts and neither is under compulsion to buy or sell.

Paid-in Capital

Funds received by a company from investors in exchange for stock, representing the capital that stockholders have invested in the company.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a share in the company’s profits through dividends.