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Compute the company average pretax borrowing cost

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Question - Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg's, Keebler, and Cheez-It. The company, with over $13.5 billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its 2018 fiscal year, it had $8.25 billion in total debt. At the end of fiscal year 2018, its total debt had increased to $8.72 billion. Its fiscal 2018 interest expense was $287 million, and its assumed statutory tax rate was 21%.

Required -

a. Compute the company's average pretax borrowing cost.

b. Assume that the book value of its debt equals its market value. Then, estimate the company's cost of debt capital.

Reference no: EM133170466

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