Which of the Following Best Defines the Cost of Debt

question 10

Multiple Choice

Which of the following best defines the cost of debt component of the WACC?

• A)The cost of debt component of the WACC is equal to 1 minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.
• B)The cost of debt component of the WACC is equal to 1 minus the marginal tax rate multiplied by the yield-to-maturity on the firm's outstanding debt.
• C)The cost of debt component of the WACC is equal to 1 plus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.
• D)The cost of debt component of the WACC is equal to 1 minus the marginal tax rate multiplied by the average duration on all outstanding debt.

---

Definitions:

Market Value

The present cost at which a service or asset may be purchased or sold in the marketplace.

Long-Run Profits

Refers to the earnings a company can maintain once it has reached its full operational efficiency, typically considering all variable and fixed costs.

Managers

Individuals responsible for directing, controlling, and administering all or part of a company or similar organization.

Revenue Maximization

The strategy of adjusting prices or sales volume to generate the highest possible income from sales, not necessarily coinciding with maximum profit.