To Determine the Actual Cost of Using Debt, a Firm

Multiple Choice

To determine the actual cost of using debt, a firm must adjust its bonds' average yield to maturity for the fact that _____. 

A) interest payments on debt represent taxable income to the firm
B) interest payments on debt represent a tax deductible expense to the firm
C) the average yield to maturity on its debt is a positive return that the firm receives (earns)
D) the average yield to maturity on the firm's debt determines the tax rate that it pays on its operating income
E) the firm's bondholders do not have to pay taxes on the interest they receive from the firm