Question: 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

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 $1,100.

What is the after-tax cost of debt?

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