Instructions to solve the problem:

You are required to use a financial calculator or spreadsheet (Excel) to solve the problem related to the cost of capital.

You are required to show the following 3 steps for the problem.

1. Describe and interpret the assumptions related to the problem.
2. Apply the appropriate mathematical model to solve the problem.
3. Calculate the correct solution to the problem. Submit all answers as percentages and round to two decimal places.

Problem:

Reason Corp. just issued a series of 30-year maturity bonds with a par value of $1,000 and a 6% coupon, paid semiannually. The bonds can sell in the open market for $925. Flotation costs on the new bonds are $90. If Reason, Corp. is in the 35% tax bracket, what is the pre-tax cost of debt on the newly issued bonds?

Thank you,