Decline, Inc

question 76

Multiple Choice

Decline, Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 11 percent annually. What is the aftertax cost of debt if the tax rate is 33 percent?

• A)6.76 percent
• B)6.90 percent
• C)7.17 percent
• D)7.37 percent
• E)7.42 percent

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Definitions:

Finance Company

A business that makes loans to individuals and commercial customers, distinct from banks and other traditional financial institutions.

Borrowing Company

A company that takes out a loan or issues debt securities to finance its operations or projects.

Aging of Accounts Receivable

The process of categorizing accounts receivable by their due dates to estimate the amount of bad debts.

Estimated Net Realizable Value

The anticipated fair value of an asset in terms of the amount for which it could be sold, minus the estimated costs of sale or disposal.