You are required to show the following 3 steps for each problem (sample questions and solutions are provided for guidance):

(i) Describe and interpret the assumptions related to the problem.

(ii) Apply the appropriate mathematical model to solve the problem.

(iii) Calculate the correct solution to the problem. Submit all answers as percentages and round to two decimal places.

QUESTION:

Lee Airlines plans to issue 15-year bonds with a par value of $1,000 that will pay $50 every six months. The bonds have a market price of $920. Flotation costs on new debt will be 6%. If the firm is in the 35% marginal tax bracket, what is the posttax cost of new debt?