Exactly five years ago, Mac Tools issued bonds with an original maturity of 25 years. These bonds pay interest semiannually, and have a fixed coupon rate of 6.5%. These bonds are currently trading for $1070 for each $1000 of face value. The company faces a marginal tax rate of 25%.

1. Find Macs post-tax marginal cost of debt. (3 points)
2. In describing your calculations as Lees marginal cost of debt, what are you implicitly assuming about Lees plans about the maturity of any new debt it might issue? (2 points)