Ghan Rail Corporation,whose Tax Rate Is 40%,has Two Sources of Funds

question 4

Multiple Choice

Ghan Rail Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8 000 000 and an interest rate of 8%,and equity capital with a market value of $12 000 000 and a cost of equity of 12%.Ghan Rail's after-tax cost of debt is:

• A).0800
• B).0480
• C).0912
• D).0320

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Definitions:

Present Value Factor

A number by which a future payment is multiplied to determine its present value.

Annuity

An economic scheme that delivers fixed periodic earnings to recipients, usually serving as financial support for those retired.

Payments

Transactions where a good or service is exchanged for monetary compensation.

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specific interest rate.