QUESTION 10 Dahl Company can borrow furo s at 15% interest Since the company\'s

Question

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

Explanation / Answer

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

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