Keys Printing Plans to Issue a $1,000 Par Value,20-Year Noncallable

question 34

Multiple Choice

Keys Printing 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 40.00%,but Congress is considering a change in the corporate tax rate to 30.00%.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%

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for monetary policy and regulation of banks.

Economic Decision-Making

The process of choosing among alternatives to maximize benefits and minimize costs in the allocation of resources, often involving significant analysis and planning.

Social Security Taxes

Taxes collected from employees and employers to fund the Social Security program, which provides benefits for retired workers, disabled individuals, and survivors of deceased workers.

Levied

Imposed or collected, typically used in reference to taxes, duties, or fines by a governing authority.