$12.$ Addison Glass Company has a $$1,000$ par value bond outstanding with $25$ years to maturity. The bond carries an annual interest payment of $$88$ and is currently selling for $$925.$ Addison is in a $25$ percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be$.$ The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.

a$.$ Compute the approximate yield to maturity on the old issue and use this as the yield for the new issue.

b$.$ Make the appropriate tax adjustment to determine the aftertax cost of debt