Multiple Choice
Gargoyle Unlimited
Gargoyle Unlimited is planning to issue a zero coupon bond to fund a project that will yield its first positive cash flow in three years. That cash flow will be sufficient to pay off the entire debt issue. The bond's par value will be $1,000, it will mature in 3 years, and it will sell in the market for $727.25. The firm's marginal tax rate is 40 percent.
-Refer to Gargoyle Unlimited.What is the expected after-tax cost of this debt issue?
A) 11.20%
B) 4.48%
C) 6.72%
D) 6.10%
E) 4.00%
Correct Answer:
Verified
Correct Answer:
Verified
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