!! A firm has an outstanding bond paying a coupon rate of 12%. The firm's tax rate is 34%. If the yield-to-maturity on the bond is 6.18%, what is the firm's after-tax cost of debt? Select one: A. 3.17% OB. 4.08% O C. 6.16% OD. 7.92% A firm's debt-to-equity ratio varies at times because is a firm: 1. Will want to take advantage of timing its fund raising in order to minimize costs over the long run II. Is allowed some leeway in its debt-to-equity ratio before being penalized by the market with a higher cost of capital III. Will try to sell common stock when prices are high and bonds when interest rates are low Select one: A. I only B. I and II only C. I and III only D. I, II, and 111 You own a $1,000 par value bond with 20 years to maturity that is paying an annual coupon rate of interest of 11%. If the current yield to maturity on this bond is 12%, what is the value of the bond? The bond makes semi-annual interest payments. Select one: O A. $925.31 O B. $892.58 O C. $924.77 D. $980.15 The dividends on preferred stock are most similar to: Select one: A. Common stock with no growth in dividends B. Common stock with constant growth in dividends OC. Common stock with variable growth in dividends OD. Common stock without dividends 38 Why is the cost of debt usually lower than the cost of common stock? I. Interest on debt is tax deductible 11. Stock dividends are not tax deductible III. Debt payments are discretionary of 1 Select one: A. I only OB. I and II only C. I and Ill only OD. I, II, and I A firm is paying a 4% coupon interest rate for its outstanding bonds. All else constant, the higher the firm's tax rate: Select one: O A. The higher its after-tax cost of debt B. The lower its after-tax cost of debt C. The after-tax cost of debt remains unchanged D. The answer cannot be determined with the information provided