Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $84, payable semiannually, and is currently selling for $1,095. Octopus is in a 30 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. a. Compute the Yield to maturity on the old issue and use this as the Yield for the new issue.

Yield on new issue....

b. Make the appropriate tax adjustments to determine the aftertax cost of debt.

Cost of debt....

issue