1. Drexel Corps debt consists of bonds that were issued 5 years ago, and that have a remaining maturity of 20 years. These bonds pay interest semiannually, have a coupon rate of 6%, and are currently trading at 90% of face value. Drexels marginal tax rate is 30%. Assuming that any new debt issued by Drexel will have a 20-year maturity, estimate

(A) Drexels marginal pre-tax cost of debt; and

(B) Drexels marginal after-tax cost of debt.