Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 98 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually.

a) What is the company's pretax cost of debt?

- 8.74

- 7.90

- 8.65

- 8.20

- 8.32

b) If the tax rate is 38 percent, what is the aftertax cost of debt?

- 3.71

- 5.16

- 5.42

- 5.36

- 4.90

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