Answer:
After tax cost of debt = 10.43%
Explanation:
Market price = 960
Flotation cost = 0.07
Market price after Flotation cost = 960*(1-0.07) = 960*0.93 = 892.8
Face value = 1,000
Interest payment (PMT) = 1000*0.07 = 70
Term of payment = 12*2 = 24
Cost of debt before tax = Rate(24, 70, -892.8, 1000, 0)*2
Cost of debt before tax = 0.080198497*2
Cost of debt before tax = 0.160396994
Cost of debt before tax = 16.04%
Tax rate = 35%
After tax cost of debt = 16.04% * (1-35%)
After tax cost of debt = 0.1604*0.65
After tax cost of debt = 0.10426
After tax cost of debt = 10.43%
