Advance Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with $16$ years to maturity that is quoted at $107$

percent of face value. The issue makes semiannual payments and has a coupon rate of $10$ percent annually.

What is Advance's pre$-$tax cost of debt? $($Do not round intermediate calculations. Round the final answer to $2$ decimal places.$)$

Cost of debt

$\%$

If the tax rate is $35$ percent, what is the after$-$tax cost of debt? $($Do not round intermediate calculations. Round the final answer to $2$

decimal places.$)$

Cost of debt

$\%$

Explanation

The pre$-$tax cost of debt is the YTM of the company's bonds, so:

$P_0=$$$1,070=$$$50A_r^{32}+$$$1,\frac{000}{(1+r{)}^{32}}$

$r=4\mathrm{.}579\%$

$r_B=24\mathrm{.}579\%=9\mathrm{.}16\%.$ How to use financial calculator. Step by step