Calculating Cost of Debt Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has a coupon rate of 8 percent annually. What is Advance’s pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?

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