Problem:
Jiminy's Cricket Farm issued an 18-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 92 percent of its face value. The company's tax rate is 35 percent.
Requirement:
Question 1: What is the pretax cost of debt?
Question 2: What is the after-tax cost of debt?
Question 3: Which is more relevant, the pretax or the after-tax cost of debt?
Note: Please show how to work it out.