All the following variables are used in computing the cost of debt EXCEPT
A) maturity value of the debt.
B) market price of the debt.
C) number of years to maturity.
D) risk-free rate.

Question

Quizplus · Accepted Answer

The risk-free rate is not directly used in computing the cost of debt. The cost of debt is typically calculated based on the interest payments, the maturity value, the market price, and the time to maturity, reflecting the actual cost to the company of borrowing funds. The risk-free rate is more relevant in assessing the opportunity cost of capital or in adjusting for risk in various financial models, rather than in directly calculating the cost of existing debt.

All the Following Variables Are Used in Computing the Cost