Problem:
Cost of Debt. Olympic sports has two issues of debt outstanding. One is a 9 percent coupon bond with a face value of $20million, a maturity of 10 years, and a yield to maturity of 10 percent. The coupons are paid annually, and a coupon rate 10 percent. The face value of the issue is $25 million, and issue sells for 94 percent of par value. The firm's tax rate is 35 percent.
a. What is the before-tax cost of debt for Olympic?
b. What is Olympic's after-tax cost of debt?