Current cost of a bond:
You know that the after-tax cost of debt capital for Bubbles Champagne is aprox. to 7 percent. If the firm has only single issue of five-year maturity bonds outstanding, what is the current price of the bonds if the coupon rate on these bonds is 10 percent? Suppose the bonds make semiannual coupon payments and the marginal tax rate is 30 percent.
1. Pre-tax cost of debt capital = %.
2. Current price of the bonds = $ .