Advance, Inc., is trying to determine its cost of debt. The firm has a debt issu

Question

Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has a coupon rate of 8 percent annually.

What is Advance's pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Pretax cost of debt ______%

If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Aftertax cost of debt _____ %

Explanation / Answer

Pretax cost of debt 8%

Aftertax cost of debt 5.2%

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