The Pre-Tax Cost of Debt for a New Issue of Debt

question 82

Multiple Choice

The pre-tax cost of debt for a new issue of debt is determined by

• A) the investor's required rate of return on issued stock.
• B) the coupon rate of existing debt.
• C) the yield to maturity of outstanding bonds.
• D) all of these.

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Definitions:

Adhesion

The property of sticking to some other substance. Compare with cohesion.

Capillary Action

The ability of water to move in small-diameter tubes as a consequence of its cohesive and adhesive properties.

Surface Tension

The attraction that the molecules at the surface of a liquid may have for one another.

Osmosis

The net movement of water (the principal solvent in biological systems) by diffusion through a selectively permeable membrane from a region of higher concentration of water (a hypotonic solution) to a region of lower concentration of water (a hypertonic solution).