Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 17 years to maturity that is quoted at 97.00% percent of face value. The issue makes semiannual payments and has a coupon rate of 9.00% percent. What is the after tax cost of debt?

Settlement	01/01/2000
Maturity	01/01/2017
Price (% of par)	97
Coupon rate	9%
Payments per year	2
Tax rate	35%
Pretax cost	9.36%

Answers:

14.39%

6.08%

12.63%

6.93%