Vaughn Corporation Is Considering the Issue of Commercial Paper and Would

question 60

Multiple Choice

Vaughn Corporation is considering the issue of commercial paper and would like to know the yield it should offer on its commercial paper. The corporation believes that a 0.2 percent credit riskpremium, a 0.1 percent liquidity premium, and a 0.3 percent tax adjustment are necessary to sell its commercial paper to investors. Furthermore, annualized T-bill rates are 7 percent. Based on this information, Vaughn should offer ____ percent on its commercial paper.

• A) 8
• B) 7.6
• C) 7.5
• D) 7.9
• E) none of the above

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Definitions:

Income Statement

A financial report that provides a summary of a company's revenues, expenses, and profits/losses over a specific period of time.

Gross Profit

The financial metric representing the difference between revenue and the cost of goods sold, before deducting overheads, salaries, taxes, and interest payments.

Net Income

The net income of a company, which is the amount remaining after deducting all costs and taxes from its total revenue.

Operating Expenses

The ongoing costs incurred in the operation of a business, excluding the cost of goods sold.