Which of the following is generally unnecessary in measuring the cost of debt?
A) a forecast of future interest rates
B) the proportions of the various classes of debt a firm proposes to use
C) the corporate income tax rate
D) All of the above are necessary for measuring the cost of debt.

Question

Quizplus · Accepted Answer

The cost of debt is the interest rate that a company pays on its debt. This rate is determined by a number of factors, including the company's creditworthiness, the term of the debt, and the current interest rate environment. A forecast of future interest rates is not necessary to measure the cost of debt, as the current interest rate environment is already reflected in the market interest rates that companies pay on their debt. Similarly, the proportions of the various classes of debt that a firm proposes to use is not necessary to measure the cost of debt, as the cost of each class of debt is already reflected in the market interest rates that companies pay on that class of debt. Finally, the corporate income tax rate is not necessary to measure the cost of debt, as the cost of debt is calculated before taxes.

Which of the Following Is Generally Unnecessary in Measuring the Cost