Jimmy\'s Cricket Farm issued a 30-year. 7.6 percent semiannual bond 6 years ago.

Question

Jimmy's Cricket Farm issued a 30-year. 7.6 percent semiannual bond 6 years ago. The bond currently sells for 92.5 percent of its face value. The company's tax rate is 38 percent. Required: (a) What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Pretax cost of debt percentage (b) What is the after tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) after tax cost of debt percentage (c) Which is more relevant, the pretax or the after tax cost of debt?

Explanation / Answer

Cost of debt before tax = 7.6%

COst of debt after tax = 7.6%(1-0.38)= 4.71%

c) After tax cost of debt

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.