Gargoyle Unlimited Gargoyle Unlimited Is Planning to Issue a Zero Coupon Bond

question 40

Multiple Choice

Gargoyle Unlimited
Gargoyle Unlimited is planning to issue a zero coupon bond to fund a project that will yield its first positive cash flow in three years. That cash flow will be sufficient to pay off the entire debt issue. The bond's par value will be $1,000, it will mature in 3 years, and it will sell in the market for $727.25. The firm's marginal tax rate is 40 percent.
-Refer to Gargoyle Unlimited.What is the expected after-tax cost of this debt issue?

• A) 11.20%
• B) 4.48%
• C) 6.72%
• D) 6.10%
• E) 4.00%

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Definitions:

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Innate, typically fixed patterns of behavior in animals in response to certain stimuli.

Emotions

Affective states that are experienced as a response to internal or external events and are associated with physiological, behavioral, and cognitive changes.

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Stimuli

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