Olympic Sports has two issues of debt outstanding. One is a 8% coupon bond with a face value of $27 million, a maturity of 10 years, and a yield to maturity 9%. The coupons are paid annually. The other bond issues has a maturity of 15 years, with coupons also paid annually, and the coupon rate of 9%. The face value of the issue is $32 million, and the issues sells for 94% of par value. The firm’s tax rate is 40%.
A) What is the before-tax cost of debt for Olympic
B) What is Olympic’s after-tax cost of debt