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6. Calculating Cost of Debt [ LO2 ] Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding

6. Calculating Cost of Debt [LO2] Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments and has an embedded cost of 5 percent annually. What is the companys pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?

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