The Company North Steel S.A. generates an EBIT of $250 million per year and has perpetual debt with a nominal value of $1000 million. The Company pays a 6% coupon rate for this debt. The risk free rate is 2.5%. If the Company issues new perpetual debt with the same seniority as the previous debt, with a nominal value of $500 million and an annual coupon of 10%; using the table below, what will be the interest rate (rD) of the new debt?

 

Interest Coverage Ratio (ICR) Less than 2.5 Between 2.5 and 4.49 Between 4.5 and 6.49 Between 6.5 and 8.5 More than 8.5 Ratin g B BB BBB A AA Spread 10.0% 5.0% 3.0% 2.0% 1.0%