Task: Calculate the cost of debt:
Shanken Corp issued a 30 year, 7 percent semiannual bond 7 years go. The bond currently sells for 108% for its face value.
The company's tax rate is 35%.
What is the pretax cost of debt?
What is the after-tax cost of debt?
Which is more relevant the pretax or the after-tax cost of debt? Why?
Show your work.