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Pearces Cricket Farm issued a 30-year, 10% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The companys tax

Pearces Cricket Farm issued a 30-year, 10% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The companys tax rate is 30%. Assume the par value of the bond is $1,000.

a. What is the pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.)

Pre-tax cost of debt %

b. What is the after-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.)

After-tax cost of debt %

c. Which is more relevant, the pre-tax or the after-tax cost of debt?

multiple choice

  • After-tax cost of debt

  • Pre-tax cost of debt

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