Question: Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?
Settlement 01/01/00
Maturity 01/01/18
Price (% of par) 107
Coupon rate 6%
Payments per year 2
Tax rate 35%