Outstanding Debt of Home Depot Trades with a Yield to Maturity

question 6

Multiple Choice

Outstanding debt of Home Depot trades with a yield to maturity of 7%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot?

• A) 4.55%
• B) 5.01%
• C) 5.46%
• D) 5.69%

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Definitions:

MSC

The marginal social cost of producing one additional unit of a good or service, which includes both the private cost and any external costs to society.

MC

Marginal cost; the cost incurred by producing one additional unit of a product.

External Cost

Costs that are not borne by the parties involved in an economic transaction but are suffered by other members of society.

Free-Rider Problem

A situation where individuals consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production, without contributing to the resource's provision.