Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is
quoted at 107.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.8 percent annually.
a. What is the company's pretax cost of debt?
b. If the tax rate is 25 percent, what is the aftertax cost of debt?
