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# Calculating Cost of Debt: Shanken Corporation issued a 30 year, 7% semiannual bond 7 years ago. The bond currently sells for 108% of its face value....

Calculating Cost of Debt:
Shanken Corporation issued a 30 year, 7% semiannual bond 7 years ago. The bond currently sells for 108% of its face value. The company's tax rate is 35%.

A. What is the pretax cost of debt?
B. What is the aftertax cost of debt?
C. Which is more relevant, the pretax or the aftertax cost of debt? Why?
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#### Top Answer

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Solution:- A) Computation of pre-tax cost of debt:Maturity period left = 23years
Coupon rate = 7%
Interest payment = Semiannual
Current market value of bond = 108% of face value
Company tax rate =...

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