The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 9 percent to help financea new playground facility in Los Angeles. This year the cost of debt is 25 percent higher—that is, firms that paid 11 percent for debt last year will be paying 13.75 percent this year.

a. If the Good smith Charitable Foundation borrowed money this year, what would the after tax cost of debt be, based on its cost last year and the 25 percent increase?
b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the after tax cost of debt be?