Jiminy's Cricket Farm issued a 30-year, 10.2 percent semiannual bond 8 years ago. The bond currently sells for 86 percent of its face value. The companyâs tax rate is 34 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt?
Jiminy's Cricket Farm issued a 30-year, 10.2 percent semiannual bond 8 years ago. The bond currently sells for 86 percent of its face value. The companyâs tax rate is 34 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt?
Related questions
Jiminy's Cricket Farm issued a 30-year, 7.2 percent semiannual bond 6 years ago. The bond currently sells for 87.5 percent of its face value. The book value of this debt issue is $103 million. In addition, the company has a second debt issue, a zero coupon bond with 9 years left to maturity; the book value of this issue is $62 million, and it sells for 59 percent of par. The companyâs tax rate is 38 percent.
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| What is the total book value of debt?
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| Jiminyâs Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 95 percent of its face value. The companyâs 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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