The Appropriate Cost of Debt to the fiRm Is

question 7

Multiple Choice

The appropriate cost of debt to the firm is:

• A)the weighted cost of debt after tax.
• B)the levered equity rate.
• C)the market borrowing rate after tax.
• D)the coupon rate pre-tax.
• E)None of the above.

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Definitions:

Coupon Payments

Periodic interest payments made to bondholders, typically on a semi-annual basis, based on the coupon rate of the bond.

Municipal

Relating to a city or town or its governing body.

Sinking Fund

A reserve fund established by a company to set aside revenue over time for the purpose of paying off debt or replacing a major asset in the future.

Bond Issue

The act of a borrower issuing bonds to raise money from investors willing to lend them money for a certain amount of time.