Peytons Colt Farm issued a 30-year, 7 percent semiannual bond 7 years ago. The bond currently sells
Question:
Peyton’s Colt Farm issued a 30-year, 7 percent semiannual bond 7 years ago. The bond currently sells for 94 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?
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Step by Step Answer:
a The pretax cost of debt is the YTM of the companys bonds so P 0 ...View the full answer
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Related Book For 
Essentials Of Corporate Finance
ISBN: 9780073382463
7th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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