Use thefollowinginformationaboutOceanicLtd.'s capital structure to answer the questions below;

Oceanic's capital structure is made up of;

CAPITAL STRUCTURE

DEBT

• Bonds

EQUITY

• Preference Shares
• Ordinary Shares
• Oceanic Ltd. has130,000bondsoutstandingwithafacevalueof$100each. These bonds have8yearstomaturityandpayanannualcoupon of 7.5%.Oceanic'sstatutorycorporatetaxrateis30%.
• Moody's Corporation is one of a bigratingsagency which has given Oceanic Ltd. a debt rating of AA. The following table shows the current yields available in the market based on debt ratings.
• The risk-free rate offered by the government on bonds is 1%.

Debt rating

Risk premium

AAA

5.8%

AA

6.5%

BBB

7.2%

BB

7.5%

• Oceanic Ltd.hasissued4millionpreference shares, which pay anannualdividend per share of $0.375.Theyare currentlytradingat$3.75each.
• Oceanic Ltd.hasissued8millionordinaryshares,whicharecurrentlytradingat$5each.Shareholders are to receive a dividend of $0.70 per share in the current year,andthisdividendisestimatedtogrowataconstantrateof2.5%inperpetuity.

NOTE:Round all dollar amounts to the nearest dollar and all percentages to two decimal places.

WhatisOceanic'saftertaxcostofdebt?