Problem 14-7 Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 9% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The company's tax rate is 20%. Assume the par value of the bond is $1,000. a. What is the pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pre-tax cost of debt 5.995 % b. What is the after-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) After-tax cost of debt 4.796 % c. Which is more relevant, the pre-tax or the after-tax cost of debt? O After-tax cost of debt Pre-tax cost of debt

Problem 14-7 Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 9% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The company's tax rate is 20%. Assume the par value of the bond is $1,000. a. What is the pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pre-tax cost of debt 5.995 % b. What is the after-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) After-tax cost of debt 4.796 % c. Which is more relevant, the pre-tax or the after-tax cost of debt? O After-tax cost of debt Pre-tax cost of debt

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter3: The Financial Environment: Markets, Institutions And Investment Banking

Section: Chapter Questions

Problem 10PROB

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