Walker Inc., is trying to determine its cost of debt. The firm has a debt issue

Question

Walker Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 107% of face value. The issue makes semi-annual payments and has an embedded cost of 7% annually. What is the company’s pretax cost of debt?
Part 2) If the tax rate is 35%, what is the aftertax cost of debt?

I need help double-checking my homework please help if you can. This is all one problem, there are two parts to the problem but this is one problem. Please also show how you arrived at the answer and everything.

Explanation / Answer

Financial calculator steps:

PV = -107 (current price of the bonds)
FV = 100 (principal at the end)
Pmt = 3.5 (half the stated coupon of 7%)
30 n (30 half year periods)
i = 3.136 (this has to be multiplied by 2 since it is half year periods)
Cost of debt = 6.273%

B)
After tax cost = pretax cost * (1-tax rate)

6.273%*(0.65) = 4.077%

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