Flotation costs and the cost of debt In March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 40-year 3.875% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $994.20 per bond and the flotation cost was $18.76 per bond. Pepsi’s corporate tax rate is 21%.

a. Ignoring flotation costs, what is Pepsi’s before-tax and after-tax costs of debt?

b. Considering flotation costs, what is Pepsi’s before-tax and after-tax costs of debt?