Posted by
**John** on
.

. Fargo Industries has outstanding 30 year bonds at 7% semiannual payments. The bond sells at 90% of its face value. If their tax rate is 22%:

a.What is the aftertax cost of debt?

b. What is the pretax cost of debt?

c. Which is more important in calculating the cost of capital for Fargo, a or b?