The After-Tax Cost of Debt for Purposes of Estimating a Company's

question 75

Multiple Choice

The after-tax cost of debt for purposes of estimating a company's weighted-average cost of capital (WACC)

• A) Requires an estimate of the yield-to-maturity for long-term bonds.
• B) Is equal to the pretax cost of debt times t, where t = income tax rate.
• C) Is equal to the pretax cost of debt/(1 − t), where t = income tax rate.
• D) Is approximated by the firm's short-term borrowing rate.
• E) Is estimated using the Capital Asset Pricing Model (CAPM).

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