AICPA Exam CPA-Business Topic 3 Question 65 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 65
Topic #: 3

The capital structure of a firm includes bonds with a coupon rate of 12% and an effective interest rate is 14%. The corporate tax rate is 30%. What is the firm's net cost of debt?

A8.4%

B9.8%

C12.0%

D14.0%

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Return on investment equals net income divided by average invested capital:

Choices 'a', 'b', and 'd' are incorrect, per the above calculation.

by Mitsue at Feb 07, 2023, 06:04 AM

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