Problem:
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 113.0 percent of face value. The issue makes semiannual payments and has an embedded cost of 9.4 percent annually.
Required:
Question 1: What is ICU's pretax cost of debt?
Question 2: If the tax rate is 38 percent, what is the aftertax cost of debt?
Note: Please show how you came up with the solution.