Intro

Simple Corp. has one bond issue oustanding, with a maturity of $10\mathrm{.}5$ years, a coupon rate of $4\%$ and a yield to maturity of $5\mathrm{.}5\%.$

Simple Corp.$\text{'}$s average tax rate is $18\%$ and its marginal tax rate is $33\%.$

Part $1$

Attempt $\frac{1}{10}$ for $10$ pts$.$

What is the $($pre$-$tax$)$ cost of debt?

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The pre$-$tax cost of debt equals the yield to maturity on a bond, or $0\mathrm{.}055$ in this case.

Part $2$

Attempt $6/10$ for $10$ pts$.$

What is the after$-$tax cost of debt?