#5

Bond Yield and After-Tax Cost of Debt

A company's 5% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $526.77. The company's federal-plus-state tax rate is 25%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal annual rate.) Round your answer to one decimal place.

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