Problem:
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. the firm can sell new $1000 par value bonds with a 15 year maturity at a price of $950 that carry a coupon interest rate of 12.9 percent that is paid semiannually.
Required:
Question: If the company is in a 34 percent tac bracket, what is the after tax cost of capital to Walgreen for the bonds?
Note: Be sure to show how you arrived at your answer.