Calculating Cost of Debt

Jiminy’s Cricket Farm issued a 30-year, 6.5 percent semiannual bond 7

Question

Calculating Cost of Debt. Jiminy’s Cricket Farm issued a 30-year, 6.5 percent semiannual bond 7

years ago. The bond currently sells for 107 percent of its face value. The company’s tax rate is 35 percent. a.What is the pretax cost of debt? b.What is the aftertax cost of debt? c.Which is more relevant, the pretax or the aftertax cost of debt? Why?

Finance