Hurlees Inc.'s CFO is interested in calculating the cost of capital. In order to calculate the cost of capital, the company has collected the following information:

The company's capital structure consists of 40 percent debt and 60 percent common stock.

The company has bonds outstanding with 25 years to maturity. The bonds have a 12 percent annual coupon, a face value of $1,000, and a current price of $1,252. The company uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 5 percent and the market risk premium, (kM - kRF), equals 6 percent. The company's common stock has a beta of 1.6.

The company's tax rate is 40 percent.

To find the cost of debt, enter the following data into your calculator:

N = 25; PV = -1252; PMT = 120; FV = 1000; and then solve for I = 9.3594%, which is the before-tax cost of debt.

So How did PMT = 120 from ? Thanks.