In estimating a firm's cost of debt,which of the following should be used?
A) The yield to maturity when the bonds were issued.
B) The yield to maturity of the bonds based on current bond prices.
C) The coupon rate payable on the bonds.
D) None of the above.

Question

Quizplus · Accepted Answer

The most accurate measure for estimating a firm's cost of debt would be the yield to maturity of the bonds based on current bond prices. This is because the yield to maturity takes into account the current market conditions and the time value of money, which can have an impact on the firm's cost of debt. The coupon rate payable on the bonds may not accurately reflect the current market conditions, and the yield to maturity when the bonds were issued may not be relevant to the current period. Therefore, the yield to maturity of the bonds based on current bond prices would provide the most accurate estimate of the firm's cost of debt.

In Estimating a Firm's Cost of Debt,which of the Following