The Aftertax Cost of Debt

question 100

Multiple Choice

The aftertax cost of debt:

• A)varies inversely to changes in market interest rates.
• B)will generally exceed the cost of equity if the relevant tax rate is zero.
• C)will generally equal the cost of preferred if the tax rate is zero.
• D)is unaffected by changes in the market rate of interest.
• E)has a greater effect on a firm's cost of capital when the debt-equity ratio increases.

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Definitions:

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