The pretax cost of debt: Group of answer choices Is based on the current yield to maturity of the firm's outstanding bonds. Is equal to the coupon rate on the latest bonds issued by a firm. Is equivalent to the average current yield on all of a firm's outstanding bonds. Is based on the original yield to maturity on the latest bonds issued by a firm. Has to be estimated as it cannot be directly observed in the market.

Question

Oliver Carroll

Business

11 January, 10:09

The pretax cost of debt: Group of answer choices Is based on the current yield to maturity of the firm's outstanding bonds. Is equal to the coupon rate on the latest bonds issued by a firm. Is equivalent to the average current yield on all of a firm's outstanding bonds. Is based on the original yield to maturity on the latest bonds issued by a firm. Has to be estimated as it cannot be directly observed in the market.

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Choi · Answer 1

The correct answer is letter "A": Is based on the current yield to maturity of the firm's outstanding bonds.

Explanation:

The cost of debt is the interest a company pays on its borrowers. It is expressed as a percentage rate. The cost of debt can be calculated as before-tax rate or an after-tax rate. Most of the time, the cost of debt is the before-tax rate of the cost of debt because that is how the company's cost of debt is calculated. That calculation implies considering the average interest paid on all the company's debts, including outstanding bonds.