Question

All else constant, which of the following will increase the aftertax cost of debt for a firm?I. increase in the yield to maturity of the firm's outstanding debtII. decrease in the yield to maturity of the firm's outstanding debtIII. increase in the firm's tax rateIV. decrease in the firm's tax rateA. I onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only

Answer 1

Answer:

B. I and III only

Explanation:

The yield increase in the debt to maturity will create that the firms interest paid rise, and a higher tax rate would increase the cost as the company has to assume more tax.