What is your best estimate of the aftertax cost of debt

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Jiminy's Cricket Farm issued a 30-year, 7 percent semi-annual bond 9 years ago. The bond currently sells for 92 percent of its face value. The book value of the debt issue is $23 million. The company's tax rate is 34 percent, and the bond has a YTM of 7.78%.

In addition, the company has a second debt issue on the market, a zero coupon bond with 9 years left to maturity; the book value of this issue is $69 million, the face value (also called par value) is $84 million, and the bonds sell for 76 percent of par.

1. What is your best estimate of the aftertax cost of debt (leave as an APR)?
a. 3.53%
b. 3.71%
c. 2.8%
d. 2.66%
e. 2.12%

 

Reference no: EM13256781

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