Assume the following information.

Tax rate is 21%.

There are 20,000 $1,000 par, 5% coupon semi-annual bonds outstanding (this is the only debt) These bonds are selling at 94% of par and have 10 years to maturity.

There are 1,000,000 shares outstanding selling at $40/share. The beta for this stock is 1.2. The risk-free rate is 3%. The expected return on the market is 10%.

What is the after-tax cost of debt?