An Investment Is Available That Pays a Tax-Free 5

question 41

Multiple Choice

An investment is available that pays a tax-free 5%. The corporate tax rate is 25%. Ignoring risk,what is the pre-tax return on taxable bonds?

• A) 5%
• B) 6.25%
• C) 6.67%
• D) 7.14%
• E) 7.69%.

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Definitions:

Unit Selling Price

The cost for one unit of a product when it is sold.

Unit Variable Costs

Costs that vary directly with the volume of production or sales, such as materials and labor, on a per-unit basis.

Contribution Margin Ratio

A financial metric that measures the portion of revenue remaining after variable production costs that can contribute to covering fixed costs and generating profit.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit, indicating how much each unit sold contributes to fixed costs and profit.