Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond. Russell Corp. is in a 40 percent tax bracket. Thw firm wishes to know what the aftertax cost of a new bond issue is likey to be. The yield to maturity on the new issue will be the same as the yeild to maturity on the issue because the risk and maturity date will be similar.

a. Compute the yeild to maturity on the old issue and use this as the yield for new issue.

b. make the appropriate tax adjustment to determine the after tax cost of debt.