Your Firm Has a $250,000 Bond Issue Outstanding

question 5

Multiple Choice

Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon,pay interest semiannually,and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?

• A) $6,125
• B) $6,309
• C) $9,500
• D) $17,500
• E) $18,025

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Definitions:

Comprehensive Insurance

A type of insurance that covers the repair or replacement of parts of an insured car damaged by vandalism, fire, flood, wind, earthquakes, missiles, falling objects, riots, tree sprays, and other disasters; it also covers if the car is stolen.

Collision Insurance

A type of insurance that pays for the repair or replacement of an insured car if it is damaged in a collision with another vehicle or object, or if it overturns, no matter who is at fault. This type of insurance is usually required if there is a loan on the car.

Deductible

Part of the repair or damages that a driver has to pay before the insurance company pays.

Drag Factor

A coefficient used in physics and engineering to quantify the resistance of an object moving through a fluid or air.