Problem:
Pearce's Cricket Farm issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company's tax rate is 35 percent. Assume the par value of the bond is $1,000.
Required:
Question 1: What is the pre-tax cost of debt?
Question 2: What is the after-tax cost of debt?
Question 3: Which is more relevant, the pre-tax or the after-tax cost of debt?
- Aftertax cost of debt
- Pretax cost of debt
Note: Provide thorough explanation of the given question.