Jiminy's Cricket Farm Issued a bond with 25 years to maturity and a semlannual coupon rate of 4 percent 5 years ago. The bond currently sells for 104 percent of Its face value. The company's tax rate is 24 percent. a. What Is the pretax cost of debt? (Do not round Intermedlate 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 Intermedlate 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? Aftertax cost of debt O Pretax cost of debt
Jiminy's Cricket Farm Issued a bond with 25 years to maturity and a semlannual coupon rate of 4 percent 5 years ago. The bond currently sells for 104 percent of Its face value. The company's tax rate is 24 percent. a. What Is the pretax cost of debt? (Do not round Intermedlate 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 Intermedlate 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? Aftertax cost of debt O Pretax 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 25 years to maturity and a semlannual coupon
rate of 4 percent 5 years ago. The bond currently sells for 104 percent of Its face value.
The company's tax rate is 24 percent.
a. What is the pretax cost of debt? (Do not round Intermedlate calculatlons 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 Intermedlete calculatlons 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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