A Firm Incurs $70,000 in Interest Expenses Each Year

question 62

Multiple Choice

A firm incurs $70,000 in interest expenses each year.If the tax rate of the firm is 20%,what is the effective after-tax interest rate expense for the firm?

• A)$37,000
• B)$49,000
• C)$56,000
• D)$65,000
• E)$72,000

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Definitions:

Transactions Rationale

The underlying reasons or business logic behind carrying out specific transactions within a company.

Effective Interest Rate

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period to the net carrying amount of the financial asset or financial liability.

Bond Issue Costs

Expenses associated with issuing bonds such as underwriting fees, legal fees, and registration fees, which are often amortized over the life of the bond.

Maturity Value

The total amount that will be paid to an investor at the end of a fixed income security's term, including principal and interest.