Jiminy’s Cricket Farm issued a 20-year, 7 percent semiannual coupon bond 4 years ago. The bond currently sells for 104 percent of its face value. The company’s tax rate is 23 percent. a.What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.What is the company’s aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The cost of debt is the effective interest rate a company pays on its debt.

Answered: Jiminy’s Cricket Farm issued a 20-year,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 2P

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Jiminy’s Cricket Farm issued a 20-year, 7 percent semiannual coupon bond 4 years ago. The bond currently sells for 104 percent of its face value. The company’s tax rate is 23 percent.

a.	What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What is the company’s aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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