Problem:
A company is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 96% of the face value. The issue makes semiannual payments and has a coupon rate of 7%annually.
Required:
Question: What is the pretax cost of debt? Tax rate of 40%, what is the after-tax cost of debt?
Note: Please answer in proper manner and show all computations