Jiminy's Cricket Farm issued a 30-year, 10.8 percent semiannual bond 5 years ago. The bond currently sells for 84.5 percent of its face value. The company’s tax rate is 40 percent.
a. What is the 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 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.)
c. Which is more relevant, the pretax or the aftertax cost of debt?