All of the Following Methods Can Be Used to Estimate

question 18

Multiple Choice

All of the following methods can be used to estimate the cost of debt except:

• A) If the firm targets an "A" rating (or any other bond rating), a review of the yields to maturity on A-rated bonds in Standard & Poor's Bond Guide can provide an estimate of the firm's current borrowing costs.
• B) The firm can solicit the advice of investment bankers on the cost of issuing new debt.
• C) If the firm has debt currently trading, it can use public market prices and yields to estimate its current cost of debt.
• D) A firm can seek long-term debt financing from a bank or a consortium of banks; preliminary discussions with the bankers will not indicate a ballpark interest rate the firm can expect to pay on its borrowing.

---

Definitions:

Liquidity

Refers to the ease with which assets can be converted into cash without significant loss of value.

Asset Management

The systematic process of developing, operating, maintaining, and selling assets in a cost-effective manner.

Debt Financing

The raising of funds through borrowing, typically by issuing bonds or taking out loans, as opposed to equity financing.

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its market price.