Question

Calculating Cost of Debt. Peyton's Colt Farm issued a 30-year, 7% semiannual bond 7 years ago. The bond currently sells for 94% of its face value. The company's tax rate is 35%. What is the pretax cost of debt? What is the aftertax cost of debt?
The pretax answer is:
1000 X 70/100 = 70
1000 X 94/100 = 940
then the pretax is 70/940 which 7.44%

the after tax is
Pretax X (1 - 35/100) = 7.44/100 ( 1-35/100) which = .0744 X (1- .35)
so .0744 X .65
answer of after cost of debt is 4.84%
gfgbg

Related Questions

Peyton’s Colt Farm issued a 30-year, 9.6 percent semiannual bond 6 years ago. The bond currently sel... Peyton’s Colt Farm issued a 30-year, 7.2 percent semiannual bond 6 years ago. The bond currently sel... Peyton’s Colt Farm issued a 30-year, 7 percent semiannual bond 7 years ago. The bond currently sells... Jiminy's Cricket Farm issued a 30-year, 7.2 percent semiannual bond 6 years ago. The bond currently...