Problem:
You are analyzing the after tax cost of debt for a firm. You know that the firm's 12 year maturity. 9.75 percent semi-annual coupon bonds are selling at a price of $1,026.32. These bonds are the only debt outstanding for the firm.
Required:
Question: What is the after tax cost of debt for this firm if it has a marginal tax rate of 34 percent?
Note: Show all workings.