Finance: A $1 000 par value bond with a market price of $ 970

Subject: Business    / Finance
Question

A $1 000 par value bond with a market price of $ 970 and a coupon interest rate of 10 percent. Flotation costs for a new issue would be approximately 5 percent. The bonds mature in 10 years and the corporate tax rate is 34 percent.

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