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Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 5 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 24 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) o. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 5 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 24 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) o. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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3 6 Book Hint Print erences Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 5 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 24 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? Aftertax cost of debt O Pretax cost of debt
Transcribed Image Text:3 6 Book Hint Print erences Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 5 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 24 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? Aftertax cost of debt O Pretax cost of debt
4 S Book Hint Print erences Ninecent Corporation has a target capital structure of 65 percent common stock, 10 percent preferred stock, and 25 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 25 percent. a. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. WACC b. Cost of debt % %
Transcribed Image Text:4 S Book Hint Print erences Ninecent Corporation has a target capital structure of 65 percent common stock, 10 percent preferred stock, and 25 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 25 percent. a. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. WACC b. Cost of debt % %
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