Husky Enterprises recently sold an issue of 10-year maturity bonds. The bonds were sold at a deep discount price of $615 each. After flotation costs, Husky received $604.50 each.
The bonds have a $1,000 maturity value and pay $50 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky's marginal tax rate is 40 percent.