Jminy\'s Cricket Famn issued a 30 year, 92 percend seiannual bond 8years ago. Th

Question

Jminy's Cricket Famn issued a 30 year, 92 percend seiannual bond 8years ago. The bond curienity set r&5 pece ofs face value. The companry's far rate is A percent. a What is the pretax coet of deb? (Do not round intermerdiate calcrlations and enter your aneswer es a percent rounded to 2 decimal places, 32.16 Pretax oost of debt b. What tb the aterlax cost of debl? (to not round indermediate cakculations and enter your answer as a percent rounded to 2 decimesl places, e.g., 32.16. Anertax cost of debt e.Which is more relevant, the prefax or the afflertax cost of det? Click to select) Hints References elook & Resources Hit #1 Check my work

Explanation / Answer

year to maturity =30-8 22 coupon rate = 9.20% semiannual current price = 885 par value = 1000 coupon payment = 1000*9.2%/2 46.00 using financial calculator we have- N=22*2 44 PV= -885 FV= 1000 PMT= 46 rate =1/Y=? we have rate = 5.28% Hence, Annual rate = 10.6% answer a Pretax cost of debt = 10.6% answer b Post tax cost of debt = 10.65*(1-0.34) 6.97% answer c After tax cost of debt is more relavant to compute WACC. Hence, correct answe is after tax cost of debt

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