Question: Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.4% and a yield to maturity of 5.1%.

Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.4% and a yield to maturity of 5.1%.

Simple Corp.'s average tax rate is 18% and its marginal tax rate is 28%.

Part 1

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

Part 2

What is the after-tax cost of debt?

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