Problem 14-7 Calculating Cost of Debt [LO2]

Jiminys Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 4 percent 2 years ago. The bond currently sells for 91 percent of its face value. The companys tax rate is 21 percent.

a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. Which is more relevant, the pretax or the aftertax cost of debt? multiple choice : Aftertax cost of debt or Pretax cost of debt