An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax__________?
Correct answer: D. Cost of debt
- A. Term structure
- B. Market premium
- C. Risk premium
- D. Cost of debt
Explanation
The interest rate a firm must pay on newly issued debt represents its pre-tax cost of debt. The after-tax cost is obtained by reducing this cost by the tax-effect factor.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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