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Who will win the NCAA Tournament?. North Carolina Kansas Memphis UCLA I don’t care. An investor who invests in a bond will receive a yield-to-maturity (YTM). From a company perspective, this is the _______________. Before Tax Cost of Debt After Tax Cost of Debt Before Tax Cost of Equity
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Who will win the NCAA Tournament? • North Carolina • Kansas • Memphis • UCLA • I don’t care
An investor who invests in a bond will receive a yield-to-maturity (YTM). From a company perspective, this is the _______________ • Before Tax Cost of Debt • After Tax Cost of Debt • Before Tax Cost of Equity • After Tax Cost of Equity
The reason why there is before tax and after tax cost of debt is because • Dividends are tax deductible • Interest expense is tax deductible • There is a capital gains tax on profits from the sale of stock
Before tax cost of equity = after tax cost of equity = cost of equity because • Dividends are not tax deductible for the company • Stock gains the investors make are not tax deductible for the company • 1 and 2 • None of the above
Cost of Capital is important because • It is compared to the IRR to determine whether a capital budgeting project should be accepted • It is used as the discount rate (“I”) when using NPV analysis to determine whether a capital budgeting project should be accepted • Both 1 and 2 • None of the above
