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

question 75

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 25.00%.By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? Do not round your intermediate calculations.

• A) 0.92%
• B) 1.30%
• C) 1.26%
• D) 0.93%
• E) 1.05%

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Definitions:

Zero Profits

Zero profits, or normal profit, occur when a company's total revenues exactly match total costs, leaving no net profit or loss.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time.

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Break Even

Break even refers to the point at which total revenues equal total costs, meaning that a business or project is neither losing nor making money.