Epson has a bond outstanding with a yield to maturity of 5% and a coupon rate of 8%. Epson's beta is 1.4, the risk-free rate is 2.2% and the expected market risk premium is 6%.
Epson has a target debt/equity ratio of 0.6 and a marginal tax rate of 34%.
What is Epson's (pre-tax) cost of debt?