You have gathered the following information on the Simpkins Corporation:

If the company were an all equity firm, it would have a beta of 0.95.

The firm has a target B/S ratio of 0.40

E(R_M) = 12%, T-bill rate is 4%

The firm has one bond issue outstanding that matures in 20 years and has a 7%

coupon rate.

The bond currently sells for $1,096.00 and pays interest semi-annually

Tc = 34%

Find:

a) The company's cost of debt (6.25%)