Blackwater Adventures has a bond issue outstanding that matures in six

Blackwater Adventures has a bond issue outstanding that matures in sixteen years. The bonds pay interest semi-annually. Currently, the bonds are quoted at 103 percent of face value and carry a 9 percent coupon. The firm’s tax rate is 34 percent.

What is the firm’s after-tax cost of debt?
A) 5.19 percent
B) 5.71 percent
C) 7.86 percent
D) 8.65 percent
E) 11.41 percent

ANSWER

B