Problempearces cricket farm issued a 30-year 8 percent, Ask an Expert

Finance

Problem:

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.

Required:

Question 1: What is the pre-tax cost of debt?

Question 2: What is the after-tax cost of debt?

Question 3: Which is more relevant, the pre-tax or the after-tax cost of debt?

Note: Please show how to work it out.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91162654

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