Use the following information for Problems 5: The capital structure of Tosev Inc. consists of two bonds and common stock. Tosev’s average tax rate is 35%. The details on the various components of its capital structure are as follows: Bond: Type: Fixed Coupon Maturity: 8 Years Coupon Rate: 9% Par Value: $1,000 Semi-annual coupons Current price: $945 Number of bonds outstanding: 115,000 Common Stock: Current price: $25.00 Number of shares outstanding: 2,500,000 Last Annual Dividend (just paid): $3.00 Expected growth rate of dividends: 8.00% Beta: 1.85 Risk free rate: 5.75% Expected return of the market: 14.50%
What is the after-tax cost of debt of Bond?