More relevant the pretax or the aftertax cost of debt

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Reference no: EM131350572

Jiminy’s Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 10 percent 2 years ago. The bond currently sells for 93 percent of its face value. The company’s 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?

Aftertax cost of debt

Pretax cost of debt

Reference no: EM131350572

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