Jiminy\'s Cricket Farm issued a 30-year, 10.8 percent semiannual bond 5 years ag

Question

Jiminy's Cricket Farm issued a 30-year, 10.8 percent semiannual bond 5 years ago. The bond currently sells for 84.5 percent of its face value. The company’s tax rate is 40 percent.

What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Face value (FV) $                                  1,000.00 Coupon rate 10.80% Number of compounding periods per year 2 Interest per period (PMT)                                            54.00 Bond price (PV) $                                   (845.00) Number of years to maturity 25 Number of compounding periods till maturity (N) 50 Bond Yield to maturity RATE(NPER,PMT,PV,FV)*2 Bond Yield to maturity 12.89% (Pre-tax cost of debt) Bond Yield to maturity 7.73% (After-tax cost of debt) 12.89%*(1-40%)

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