Determine the (After-Tax)component Cost of a $50 Million Debt Issue

question 15

Multiple Choice

Determine the (after-tax) component cost of a $50 million debt issue that the Mattingly Corporation is planning to place with a large insurance company. Assume the company is subject to a 40% tax rate. This long-term debt issue will yield 12% to the insurance company.

• A)4.8%
• B)7.2%
• C)12.0%
• D)None of the above

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Definitions:

Few Tenths

A phrase typically used to describe a small quantity or measure, amounting to a fraction of a whole.

Picture-Image

A visual representation of an object, person, or scene produced on a surface.

Short-Term Memory

A cognitive function that holds a small amount of information in an active, readily available state for a short period.

Bits of Information

The smallest units of data in communication and information theory, representing a binary choice or a distinction between two alternatives.