A Non-profit Sports Organisation, which is tax-exempt, issued debt last year at 6 percent to help finance a new arena in Headingly.

This year the cost of debt is 10 percent higherthat is, firms that paid 10 percent for debt last year will be paying 11 percent this year.

1. If the non-sports organization borrowed money this year, what would the after-tax cost of debt be, based on their cost last year and the 10 percent increase?

2. If the receipts of the organization were found to be taxable by the HMRC (at a rate of 20 percent because of involvement in political activities), what would the after-tax cost of debt be?