Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 109 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually.
Required: (a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.)
(b) If the tax rate is 38 percent, what is the aftertax cost of debt?