Question
Jiminys Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently
Jiminys Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 92 percent of its face value. The companys tax rate is 35 percent. |
a. | What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Pretax cost of debt | % |
b. | What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Aftertax cost of debt | % |
c. | Which is more relevant, the pretax or the aftertax cost of debt? | ||||
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