In Abraham Maslow's hierarchy of human needs, the need for basic life (food, shelter), a safe environment, and to belong and be
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Answer:
Pre-tax Cost of debt 7.35%
After-tax Cost of debt 4.78%
Explanation:
We will calculate the cost of debt which is the rate at which the present value of the coupon payment and maturirty matches with the market value.
Coupon payment =100 x 8% / 2 = 4
Face value= 100
market Value = P= 106
n= total payment = 14 years x 2 payment per year = 28
YTM = 3.6754508%
As this rate will be semiannually we multiply by 2
3.6754508 x 2 = 7.3509015 = 7.35%
Then we calcualte the cost of debt after tax:
pretax (1-t)
7.35 (1-.35) = 7.35(0.65) =4,7775 = 4.78%