DL Trucking Has a Cost of Equity of 14

question 15

Multiple Choice

DL Trucking has a cost of equity of 14.4 percent and an unlevered cost of capital of 13 percent.The company has $20,000 in debt that is selling at par value.The levered value of the firm is $46,000 and the tax rate is 35 percent.What is the pretax cost of debt?

• A)11.75%
• B)10.20%
• C)9.38%
• D)11.20%
• E)12.35%

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Definitions:

Consumption

The act of using goods and services for personal use, satisfaction, or to fulfill needs, playing a crucial role in economic theories concerning demand and spending.

Utility Function

A mathematical representation that ranks an individual's preferences over a set of goods and services, showing the level of satisfaction or utility those goods or services provide.

Interest Rate

The percentage of principal charged by the lender for the use of its money or the return earned on deposit funds.

Consumption

The use of goods and services by households or individuals, typically measured to understand economic activity and consumer behavior.