A firm's before-tax cost of debt, r4 is the interest rate that the firm must pay on debt. Because interest is tax deductible, the relevant cost of debt used to calculate a firm's WACC is the cost of debt, rd(1T). The cost of debt is used in calculating the WACc because we age interested in maximizing the valu of the firm's stock, and the stock price depends on cash flows. It is important to emphasize that the cost of debt is the interest rate on debt, not 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 paut is because we need to know the cost of measure of the cost of debt than the capital, For these reasons, the on outstanding debe (which reffects current market conditions) is a better often than not, the copital is being raised to fund term projects. on the company's -term debe is generally used to calculate the cost of debe because, more Quantitative Problem: 5 years ago, Barton thdustries issued 25 year noncallable, semiannual bonds with a $1,000 face value and a 646 coupon, semiannual poyment (s30 poyment every 6 menths). The bonds currently sell for 1822.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate. cakulations. ound your answer to two decimal giaces