1. We use the _____ cost of debt in the calculation of the WACC since interest payments _____.
after-tax; are tax deductible
before-tax; are fixed
before-tax; are made to bondholders, not the IRS
after-tax; are fixed
2. What is the present value of the cost of college education for 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents’ portfolio rate of return is 8%.
a. $294,000. b. $295,000. c. $300,000. d. $305,000.