The Coastal After Dark Restaurant issues a 10 year $1,000 bond at par in 2016, with an issuance cost of $5 per bond. On this bond, it spends annually $80 in coupon payments to the holders of each of the bonds issued. Furthermore, the tax rate for this restaurant is 35%.
a. Calculate the cost of debt capital?
b. In 2017, it was announced that, as a result of tax reform, the company’s tax rate will be reduced from 35% to 30%. Calculate the cost of debt capital for 2018.