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:

Inhalation

The act of drawing air or other substances into the lungs, a critical component of the respiratory process.

Gas Exchange

The process by which organisms exchange gases (such as oxygen and carbon dioxide) with their environment, crucial for respiration and photosynthesis.

Amphibians

Amphibians are a class of cold-blooded vertebrates that includes frogs, toads, salamanders, and newts, characterized by their life cycle stages both in water and on land.

Hemoglobin

A protein in red blood cells that carries oxygen from the lungs to the body's tissues and returns carbon dioxide from the tissues back to the lungs.