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nevermind11111 nevermind11111
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3 weeks ago
Laurentide Ski Resort has to make a choice between two different debt issues. Issue 1 has an interest rate of 5% and the interest is tax deductible. Issue 2 has an interest rate of 4% however the interest is not tax deductible. If the firm has a tax rate of 40%, which issue is preferred and why?

▸ Issue 2 because the after-tax cost is 1.6% while the after-tax cost of Issue 1 is 2%.

▸ Issue 2 because the interest rate of 4% is less than the 5% of issue 1.

▸ Issue 1 because the after-tax cost is 2% while the after-tax cost of issue 2 is 4%.

▸ Issue 1 because the after-tax cost is 3% while the after-tax cost of issue 2 is 4%.
Textbook 
Corporate Finance

Corporate Finance


Edition: 5th
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studytimestudytime
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