What is the pretax cost of debt


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.

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Accounting Basics: What is the pretax cost of debt
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