Jiminy's Cricket Farm issued a 30-year, 10 percent semiannual bond 7 years ago. The bond currently sells for 86.5 percent of its face value. The company’s tax rate is 35 percent.
What is the pretax cost of debt? %?
What is the aftertax cost of debt? %?
Which is more relevant, the pretax or the aftertax cost of debt?
How would you figure this out?