What is ernst pre-tax cost of debt

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Reference no: EM132020328

1. Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 34% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?

a. $6,594

b. $21,802

c. $10,134

d. $5,399

e. $15,363

2. Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest annually. The bonds are currently quoted at 99 percent of face value. What is Ernst's pre-tax cost of debt?

a. 5.53 percent

b. 5.03 percent

c. 5.13 percent

d. 6.47 percent

e. 5.40 percent

Reference no: EM132020328

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