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Henry is trying to determine Franco Inc’s cost of debt. The firm has a debt issue outstanding with 17 years to maturity that is quoted at 90 percent of face value. The issue makes semiannual payments and has a coupon rate of 6 percent annually. What is Franco Inc’s pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?

A. Pre Tax: 8.39%, After Tax: 6.75%

B. Pre Tax: 7.02%, After Tax: 4.56%

C. Pre Tax: 11.55%, After Tax: 7.51%

D. Pre Tax: 9.65%, After Tax: 8.22%

E. Impossible to calculate with information given.

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Financial Management, Finance

Category:- Financial Management
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