Question: Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 6 percent (semi-annual interest payments), 14 years remaining until maturity, and a $1,000 maturity value; they are currently selling for $925 each.
a. If Notable issues new bonds today, what will be its before-tax cost of debt?
b. What will be its before-tax cost of debt if the price of its existing bonds is $850 when Notable issues the new bonds?