Jiminy's Cricket Farm issued a 30-year, 6.5 percent semiannual bond 7 years ago. The bond currently sells

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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 after tax cost of debt?

c. Which is more relevant, the pretax or the after tax cost of debt? Why?

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Essentials of Corporate Finance

ISBN: 978-0078034756

8th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Question Posted: Feb 23, 2017 02:17 AM

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Jiminy's Cricket Farm issued a 30-year, 6.5 percent semiannual bond 7 years ago. The bond currently sells

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