Asked by
Sophy mailkzada
on Dec 01, 2024Verified
In the calculation of the component cost of a firm's debt, the yield-to-maturity on the firm's bonds:
A) is equal to the component cost of debt.
B) must be adjusted for expected capital gains or losses on the bonds.
C) must be adjusted for the tax-deductibility of interest expense.
D) b and c
Yield-to-Maturity
The total return anticipated on a bond if the bond is held until its maturity date, considering all interest payments and the repayment of principal.
Tax-Deductibility
The feature of certain expenses that can be subtracted from gross income to reduce taxable income and lower the tax bill.
Interest Expense
The cost incurred by an entity for borrowed funds; this can include payments on loans, bonds, or lines of credit.
- Recognize the elements of capital and their associated expenses.
- Explain the effect of taxation on capital costs.
Verified Answer
AS
Learning Objectives
- Recognize the elements of capital and their associated expenses.
- Explain the effect of taxation on capital costs.