Problem:
Triplin Corporation'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: Determine the appropriate after-tax cost of new debt for Triplin to use in a capital budgeting analysis.
Note: Be sure to show how you arrived at your answer.