Problem:
Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. The tax rate is 35%.
Requirement:
Question: If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs.
Note: Please show basic calculation