QUESTION 10 Dahl Company can borrow furo s at 15 interest Si

QUESTION 10 Dahl Company can borrow furo s at 15% interest Since the company\'s tax rate is 40%, its after-tax coat of interest is only 9%. Thus, the company reasons that $70,000 per year before intorest and taxes on a new investment of $500,000, then it will be better off by $25,000 per year can earn O The company\'s reasoning is correct 3 The company\'s reasoning is not correct, since the after-tax cost of interest would be 6 percent, rather than 9% O The company\'s reasoning is not correct, since interest is not tax-deductible O The oompany\'s reasoning is not correct, since it woulkd be worse off by $3,000 per year ater taxes

Solution

(d) The company\'s reasoning is not correct, since it would be worse off by $3,000 per year after taxes.