The George Company, Inc

question 94

Multiple Choice

The George Company, Inc., has two issues of debt. Issue A has a maturity value of 8 million dollars, a coupon rate of 8%, paid annually, and is selling at par. Issue B was issued as a 15 year bond 5 years ago. Its coupon rate is 9%, paid annually. Investors demand a pre-tax return of 9.3% on this bond. The maturity value of Issue B is 6 million dollars. The George company has a marginal tax rate of 35%. What is the company's after tax cost of debt?

• A) 4.73%
• B) 5.56%
• C) 7.36%
• D) 8.47%

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Definitions:

Deindividuation

A psychological state where individuals abandon self-awareness and norms in group contexts, leading to uncharacteristic behavior.

Social Facilitation

The tendency for people to perform differently when in the presence of others than when alone, typically performing better on simple or well-rehearsed tasks.

Groupthink

is a psychological phenomenon that occurs within a group of people, where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Groupthink

A psychological phenomenon occurring within a group of people, where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.