Problem:
The Lincoln Company sold a $1,000 par value, noncallable bond several years ago that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 40%.
Required:
Question: What is the after-tax cost of debt for use in the WACC calculation?
Note: Provide support for your rationale.