Colossus Company has the ability to obtain debt financing at 10 percent. It currently has $2,000,000 in debt outstanding and is considering taking on more to fund a major expansion. It has a marginal income rate of 25 percent. US Treasury bonds are currently yielding 2.0 percent. What is the firm's pretax

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Colossus Company has the ability to
obtain debt financing at 10 percent.
It currently has $2,000,000 in debt
outstanding and is considering
taking on more to fund a major
expansion. It has a marginal income
rate of 25 percent. US Treasury
bonds are currently yielding 2.0
percent. What is the firm's pretax
cost of debt?
O A. 10 percent
O B. 7.5 percent
O C. 25 percent
O D. 2.0 percent
Transcribed Image Text:Colossus Company has the ability to obtain debt financing at 10 percent. It currently has $2,000,000 in debt outstanding and is considering taking on more to fund a major expansion. It has a marginal income rate of 25 percent. US Treasury bonds are currently yielding 2.0 percent. What is the firm's pretax cost of debt? O A. 10 percent O B. 7.5 percent O C. 25 percent O D. 2.0 percent
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