Problem:
Peyton's Colt Farm issued a 30-year, 9.6 percent semiannual bond 6 years ago. The bond currently sells for 87.5 percent of its face value. The company's tax rate is 38 percent.
Required:
Question 1: What is the pretax cost of debt?
Question 2: What is the aftertax cost of debt?
Note: Please show how to work it out.