Keys Printing Plans to Issue a $1,000 Par Value,20-Year Noncallable

question 32

Multiple Choice

Keys Printing plans to issue a $1,000 par value,20-year noncallable bond with a 7.00% annual coupon,paid semiannually.The company's marginal tax rate is 40.00%,but Congress is considering a change in the corporate tax rate to 45.00%.By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

• A) -0.36%
• B) -0.42%
• C) -0.44%
• D) -0.30%
• E) -0.35%

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Definitions:

Upward Wage Pressures

The factors that cause the costs of labor in the market to increase.

Supply-Side Economist

An economist who believes that reducing tax rates and deregulation will stimulate economic growth by incentivizing individuals and businesses to produce goods and services.

Money Supply

The aggregate sum of financial assets present within an economy at a certain moment, encompassing cash, coins, and the amounts in checking and savings accounts.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, leading to a decrease in purchasing power.