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Fannys Farm issued a 25-year, 6 percent semiannual bond four years ago. The bond currently sells for 102 percent of its face value. The companys

Fannys Farm issued a 25-year, 6 percent semiannual bond four years ago. The bond currently sells for 102 percent of its face value. The companys tax rate is 21 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 cost of debt? Why?

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