2. 2: The Cost of Capital: Cost of Debt A firm's before-tax cost of debt, roi Is the Interest rate that the firm must pay on Select v debt. Because interest is tax deductible, the relevant cost of select debt used to calculate a firm's WAOC is the select cost of debt, ra(1-T). The-Select cost of debt is used in calculating the WACC because we are interested in maximizing the value of the firm's stock, and the stock price depends on Select cash flows. It is important to emphasize that the cost of debt is the interest rate on-Select debt, not efect debt because our primary concern with the cost of capital is its use in capital budgeting decisions. The rate at which the firm has borrowed in the post is Select because we need to know the cost of seed capital for these reasons, the rest von outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the Select 7. The select on the company's select-term debt is generally used to calculate the cost of debt because more often than not, the capital is being raised to fund setter projects. Quantitative Problemi 5 years ago, Barton Industries issued 25-year noncalable, semiannual bonds with a $1,000 face value and a 10% coupon, semiannual payment (550 payment every 6 months). The bonds currently well for $641.07. W the firm's marginal tax rate i 25%, what is the firm's after-tax cost or debt? Do not found intermediate calculations. Round your answer to two decimal places