Problem:
Dot.Com has determined that it could issue $1400 face value bonds with an 10 percent coupon paid semiannually and a 5-year maturity at $1285.06 per bond.
Requirement:
Question: If Dot.Com's marginal tax rate is 38 percent, its after-tax cost of debt is closest to:
- 7.8 percent
- 7.2 percent
- 7.4 percent
- 7.6 percent
Note: Provide support for your underlying principle.