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What is the after-tax cost of debt

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Question - Pearce's Cricket Farm issued a 30-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The company's tax rate is 20%. Assume the par value of the bond is $1,000.

a. What is the pre-tax cost of debt?

b. What is the after-tax cost of debt?

c. Which is more relevant, the pre-tax or the after-tax cost of debt?

Reference no: EM133017964

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