What is your best estimate of the after-tax cost of debt

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Case: Jiminy's Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 5 percent 3 years ago. The bond currently sells for 92 percent of its face value. The company's tax rate is 22 percent. The book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero-coupon bond with 8 years left to maturity; the book value of this issue is $20 million, and the bonds sell for 65 percent of par.

What is your best estimate of the after-tax cost of debt?

Reference no: EM133492755

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