Consider the Following Equation

question 48

Multiple Choice

Consider the following equation:
The term r_D(1 - τ_c) in this equation is

• A) the required rate of return on debt.
• B) the dollar amount of equity.
• C) the after tax required rate of return on debt.
• D) the required rate of return on equity.

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Definitions:

Face Value

The nominal value printed on a bond or share, representing its legal value rather than market value.

Bond Discount

The difference when bonds are sold for less than their face value, indicating investors require a higher yield due to perceived risks or interest rates being higher than the bond's rate.

Accrued Interest

Interest that has been incurred but not yet paid, often relating to bonds or loans.

Semiannual Interest Expense

Interest expense that is due or accrued every six months on outstanding debts.