A Firm Has a Pre-Tax Cost of Debt of 8

question 77

Multiple Choice

A firm has a pre-tax cost of debt of 8.5%.If the firm has a marginal tax rate of 40%,what is its effective cost of debt?

• A)5.1%
• B)3.4%
• C)8.5%
• D)8.1%
• E)7.2%

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Definitions:

Expenses

Costs incurred by a business or individual in the process of earning revenue.

Owner Financing

A method of financing in which the seller of a property provides a loan to the buyer directly, often with flexible terms.

Creditors Or Lenders

Individuals or institutions that lend money or extend credit to others, with the expectation of being repaid with interest.

Revenues

The total amount of money received by a company for goods sold or services provided during a certain period of time.