Problem:
QRM, Inc.'s marginal tax rate is 35%. It can issue 10-year bonds with an annual coupon rate of 7% and a par value of $1,000. After $12 per bond flotation costs, new bonds will net the company $966 in proceeds.
Required:
Question 1: Determine the appropriate after-tax cost of new debt for the firm to use in a capital budgeting analysis. Please present complete computation and also provide full description.