Shanken Corp. issued a 30-year, 6.2 percent semiannual bond 7 years ago. The bon
ID: 2499007 • Letter: S
Question
Shanken Corp. issued a 30-year, 6.2 percent semiannual bond 7 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 35 percent.
What is the pretax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
What is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
a.What is the pretax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
a) Pre tax cost of debt = 6.2 * 2 = 12.4%
b) Post tax cost of debt = 12.4 ( 1- 0.35) = 8.06%