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QUESTION
A company issued a 25 year, 6.8 percent semiannual bond 8 years ago. The bond sells today for 110 percent of its face value. The tax rate is 40%.
A company issued a 25 year, 6.8 percent semiannual bond 8 years ago. The bond sells today for 110 percent of its face value. The tax rate is 40%.
- What is the pretax cost of debt?
- What is the after-tax cost of debt?
- Which is more relevant, the pretax or the after-tax cost of debt? Why?
