Drogo, inc., is trying to determine its cost of debt. the firm has a debt issue outstanding with 12 years to maturity that is quoted at 110 percent of face value. the issue makes semiannual payments and has an embedded cost of 6 percent annually.
a. what is the company’s pretax cost of debt? (do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)
pretax cost of debt %.
b. if the tax rate is 35 percent, what is the aftertax cost of debt? (do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)
aftertax cost of debt %.

1. 4.89%

2. 3.18%

Explanation:

In this question, we use the Rate formula which is shown in the spreadsheet.  

The NPER represents the time period.  

Given that,  

Present value = $1,000 × 110% = $1,100

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 6% ÷ 2 = $30

NPER = 12 years  × 2 = 24 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 4.89%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 4.89% × ( 1 - 0.35)

= 3.18%

a) both were commissioned explorers

answer; the above statement/question is ( true);