Calculating cost of debt Jiminys Cricket Farm issued a 30-year, 9 percent semiannual bond 7 years ago.

Question:

Calculating cost of debt Jiminy’s Cricket Farm issued a 30-year, 9 percent semiannual bond 7 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 35 percent.

a. What is the pretax cost of debt?

b. What is the after tax cost of debt?

c. Which is more relevant, the pretax or the after-tax of debt? Why?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...