Jiminy's Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 6 percent 3 years ago. The bond currently sells for 103 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt % %
Jiminy's Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 6 percent 3 years ago. The bond currently sells for 103 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt % %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Jiminy's Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon
rate of 6 percent 3 years ago. The bond currently sells for 103 percent of its face value.
The company's tax rate is 22 percent.
a. What is the pretax cost of debt? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Pretax cost of debt
b. Aftertax cost of debt
%
%
c. Which is more relevant, the pretax or the aftertax cost of debt?
O Aftertax cost of debt
O Pretax cost of debt
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