Freddy’s Farm issued a 25-year, 5 percent semiannual bond three years ago. The bond currently sells for 97 percent of its face value. The company’s tax rate is 21 percent. What is the pretax cost of...



  1. Freddy’s Farm issued a 25-year, 5 percent semiannual bond three years ago. The bond currently sells for 97 percent of its face value. The company’s tax rate is 21 percent.




  1. What is the pretax cost of debt?

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

  3. Which is more relevant, the pretax or the after-tax cost of debt? Why?



Jun 04, 2022
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