Question: My real question is #4 , but #4 is based off #3. 3. Calculating Cost of Debt Shanken Corp. issued a 30-year, 5.9 percent semiannual

My "real" question is #4, but #4 is based off #3.

3. Calculating Cost of Debt Shanken Corp. issued a 30-year, 5.9 percent semiannual bond 6 years ago. The bond currently sells for 108 percent of its face value. The companys 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?

4. Calculating Cost of Debt For the firm in the previous problem, suppose the book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero coupon bond 12 years left to maturity; the book value of this issue is $80 million and the bonds sell for 61 percent of par. What is the companys total book value of debt? The total market value? What is your best estimate of the after-tax cost of debt now?

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