The before-tax cost of debt, rd, is the same as the
A)average yield to maturity (YTM) associated with the firm's bonds.
B)dividend yield associated with the firm's common stock.
C)average coupon rate of the firm's bonds.
D)re if the firm has no preferred stock.
E)the firm's marginal tax rate.

Question

Quizplus · Accepted Answer

The before-tax cost of debt, rd, is the yield to maturity (YTM) associated with the firm's bonds, which represents the average return required by investors who purchase the firm's bonds in the market. This yield reflects the interest rate the firm must pay on its debt obligations and includes payment of principal and interest. Therefore, the before-tax cost of debt is best measured by the average yield to maturity (YTM) associated with the firm's bonds.

The Before-Tax Cost of Debt, Rd, Is the Same as the