The After-Tax Cost of Debt Is Found By

question 67

Multiple Choice

The after-tax cost of debt is found by:

• A) dividing the before-tax cost of debt by (1 - the corporate tax rate).
• B) subtracting (1 - the corporate tax rate) from the before-tax cost of debt.
• C) multiplying the before-tax cost of debt by (1 - the corporate tax rate).
• D) subtracting the corporate tax rate from the before-tax cost of debt.

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Definitions:

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account to analyze the profitability of investments.

Profitability Index

A financial metric that measures the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Annuity

A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment.