Problem 12-6 Calculating Cost of Debt [LO 2]

ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 114 percent of face value. The issue makes semiannual payments and has an embedded cost of 9.8 percent annually.

Requirement 1:

What is ICUs pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Pretax cost of debt

%

Requirement 2:

If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Aftertax cost of debt

%