DL Trucking Has a Cost of Equity of 15

question 2

Multiple Choice

DL Trucking has a cost of equity of 15.4 percent and an unlevered cost of capital of 13.2 percent.The company has $24,000 in debt that is selling at par value.The levered value of the firm is $59,000 and the tax rate is 34 percent.What is the pretax cost of debt?

• A)8.75%
• B)8.34%
• C)7.38%
• D)9.20%
• E)9.69%

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Definitions:

Potential Impacts

Possible effects or outcomes that may occur as a result of a specific action or event.

Basic Earnings

The net income divided by the number of outstanding shares, representing the earnings available to shareholders.

Price/Earnings Ratio

A valuation measure comparing the current share price of a company to its per-share earnings, often used to assess if a stock is over or undervalued.

Cash Flow Per Share

A measure of a firm's financial flexibility, calculated as operating cash flow divided by the number of outstanding shares.