Problem:
Aspen's Distributors has a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%.
Required:
Question 1: What is the pre-tax cost of debt? Explain comprehensively and provide all workings and methods.