Shanken Corp. issued a 30- year 6.2 percent semiannual bond 7 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 35 percent.
a. what is the pretax cost of debt?
b. what is the aftertax cost od debt?
c. which is more relevant, the pretax or the aftertax cost of debt? Why?
For the firm in the previous question problem, suppose the book value of the debt issue is $70 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity. What is the company's total book value of debt? The total market value? What is your 61 percent of par? What is the company's total book value of debt? The total market value? what is your best estimate of the aftertax cost of debt now?