Problem:
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 98 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually.
Required:
Question 1: What is the company's pretax cost of debt? (Do not round your intermediate calculations.)
Question 2: If the tax rate is 33 percent, what is the aftertax cost of debt?
Note: Solve the problem and show all work.