(Cost of debt) Belton Distribution Company

(Cost of debt) Belton Distribution Company is issuing a $1, 000 par value bond that pays 7.0 percent annual interest and matures in 15 years that is paid semiannually. Investors are willing to pay $958 for the bond. The company is in the 18 percent marginal tax bracket.

What is the firm’s after-tax cost of debt on the bond?

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