Russell Container Company has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $119, and is currently selling for $940 per bond. Russell is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.

For Russell Container Company, assume the yield on the bonds goes up by one percentage point and that the tax rate is now 49 percent.

a. What is the new aftertax cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of debt %