If a Corporation Issued $4,000,000 in Bonds Which Pay 5

question 33

Multiple Choice

If a corporation issued $4,000,000 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) $2,000,000
• B) $60,000
• C) $200,000
• D) $140,000

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Definitions:

Bond Debenture

A type of debt instrument that is not secured by physical assets or collateral but backed by the general creditworthiness of the issuer.

Corporation Issues

Problems or challenges faced by a corporation, such as governance, regulatory compliance, or fiscal management.

Bondholders

Investors or institutions that own bonds issued by corporations or governments and are entitled to interest payments and the return of principal.

Interest Expense

The financial charge an entity faces for borrowing money during a specific timeframe.