3- Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannua

Question

3-

Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 91 percent of its face value. The company’s tax rate is 35 percent.

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.)

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.)

Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 91 percent of its face value. The company’s tax rate is 35 percent.

Explanation / Answer

What is the company’s pretax cost of debt

use financial calculator

PV=-1000*91%=-910

N=(15-4)*2=22 semi annual

FV=1000

PMT=1000*10%/2=50

Click CPT

Click 1/Y=5.73% per semi annual

cost of debt=5.73%*2=11.46% is answer

the above is the answers

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