Problem:
A company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The tax rate is 40%.
Requirement:
Question: If the flotation cost is 3% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs.
Note: Please provide full description.