Problem:
Jiminy's Cricket Farm issued a 30-year, 6 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 35 percent.
Required:
Question 1: What is the pretax cost of debt?
Question 2: What is the aftertax cost of debt?
Question 3: Which is more relevant, the pretax or the aftertax cost of debt?
Note: Explain all steps comprehensively.