The firm's annual financing costs of conservative financing strategy are ________.(See Table 14.1)
A)$22,775
B)$26,075
C)$26,775
D)$21,175

Question

Quizplus · Accepted Answer

The annual financing costs for the conservative financing strategy can be calculated by adding up the interest expense for each source of funding. 
For this firm, the conservative financing strategy involves using only long-term debt at a rate of 8%.

Thus, the annual financing cost = Long-term debt interest expense = $334,700 x 8% = $26,776

Therefore, the correct answer is choice C, $26,775 (Rounding off).

The Firm's Annual Financing Costs of Conservative Financing Strategy Are