1. A bond has a $1,000 par value (face value) and a contract or coupon interior rate of 8%. A new issue would have a flotation cost of 5% of the market value. The bonds mature in 10 years. The firm’s average tax rate is 28% and its marginal tax rate is 39%. The current price is $1100. What is the after tax cost of debt?

Question

1.	A bond has a $1,000 par value (face value) and a contract or coupon interior rate of 8%.  A new issue would have a flotation cost of 5% of the market value. The bonds mature in 10 years.  The firm’s average tax rate is 28% and its marginal tax rate is 39%. The current price is $1100. What is the after tax cost of debt?