The Outstanding Debt of Berstin Corp

question 86

Multiple Choice

The outstanding debt of Berstin Corp.has five years to maturity,a current yield of 6%,and a price of $95.Assume the debt has a face value of $100.What is the pretax cost of debt if the tax rate is 30%?

• A)4.2%
• B)4.8%
• C)6.9%
• D)7.3%
• E)7.7%

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Definitions:

Current Year

The period of time from January 1 to December 31 of the present calendar year.

Depreciation Expense

The distribution of a tangible asset's cost throughout its lifespan.

Operating Activities

Business activities related directly to the production and delivery of goods and services.

Net Income

The remaining earnings of a company following the deduction of all expenses and taxes from its total revenue.