Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 97 percent of its face value. The company’s tax rate is 35 percent.
a. What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Pretax cost of debt %
b. What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Aftertax cost of debt %
c. Which is more relevant, the pretax or the aftertax cost of debt?
Aftertax cost of debt
Pretax cost of debt