The Cost of Debt Is Determined by Taking The

question 124

Multiple Choice

The cost of debt is determined by taking the:

• A) present value of the interest payments and principal times one minus the tax rate.
• B) historical yield on bonds times one minus the tax rate.
• C) estimated yield on new bond issues of the same risk times one minus the shareholder marginal tax rate.
• D) yield and subtracting the tax rate.

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Definitions:

Amortization

The systematic reduction of a loan or the spreading out of capital expenses for intangible assets over a specific period of time for accounting and tax purposes.

Fair Value

Fair value is the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Asset Write-Downs

An accounting process involving the reduction in the book value of an asset when its market value falls below its current book value.