Jiminys Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells

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Jiminy’s Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 22 percent.

a. What is the pretax cost of debt?

b. What is the aftertax cost of debt?

c. Which is more relevant, the pretax or the aftertax cost of debt? Why?

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Fundamentals of Corporate Finance

ISBN: 978-1260153590

12th edition

Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan

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Question Posted: Jul 17, 2019 11:36 AM

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Jiminys Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells

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a The pretax cost of debt is the YTM of the companys bo...View the full answer

Fundamentals of Corporate Finance

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