King Fisher Aviation issued a 25 year, 5.5% semi-annual bond 17 years ago. The bond sells today for 101% of par. The tax rate is 21%.

1. What is the pretax cost of debt?
2. What is the after-tax cost of debt?
3. Which is more relevant, the pretax or the after-tax cost of debt? Why?

Fill in the values in the spreadsheet and show formulas.

01/01/00 01/01/25 Output Area: Pretax cost of debt Aftertax cost of debt 1 Input Area: 2 Settlement 3 Maturity 4 Price (% of par) 5 Coupon rate 6 Payments per year | 7 Tax rate 101 5.50% 2 . 21%