Pearces Cricket Farm issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells
Question:
Pearce’s Cricket Farm issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 35 percent. Assume the par value of the bond is $1,000.
a. What is the pre-tax cost of debt?
b. What is the after-tax cost of debt?
c. Which is more relevant, the pre-tax or the after-tax cost of debt? Why?
Par ValuePar value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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a The pretax cost of debt is the YTM of the companys ...View the full answer
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Related Book For 
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
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