Question
Pearces Cricket Farm issued a 30-year, 9% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The companys tax
Pearces Cricket Farm issued a 30-year, 9% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The companys tax rate is 35%. 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started