Laurentide Ski Resort Has to Make a Choice Between Two

question 8

Multiple Choice

Laurentide Ski Resort has to make a choice between two different debt issues.Issue 1 has an interest rate of 5% and the interest is tax deductible.Issue 2 has an interest rate of 4% however the interest is not tax deductible.If the firm has a tax rate of 40%, which issue is preferred and why?

• A)Issue 2 because the interest rate of 4% is less than the 5% of issue 1.
• B)Issue 1 because the after-tax cost is 3% while the after-tax cost of issue 2 is 4%
• C)Issue 1 because the after-tax cost is 2% while the after-tax cost of issue 2 is 4%
• D)Issue 2 because the after-tax cost is 1.6% while the after-tax cost of Issue 1 is 2%

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Definitions:

Stakeholders

Individuals or groups that have an interest or stake in the performance and decisions of an organization, including employees, customers, and investors.

Strategic Management

The process of planning, monitoring, analyzing, and assessing an organization's direction in terms of its goals and objectives.

Professional Planner's Responsibility

The duty of planning professionals to make informed, ethical decisions that consider the welfare of the public and the environment.

CEO's Responsibility

The duties and obligations that come with the role of a Chief Executive Officer, including setting strategic direction, making major corporate decisions, and managing the overall operations and resources of a company.