Q30
Single choice
Assume the following facts about Martin Corporation:
- The long-term debt was originally issued at par ($1,000/bond) and is currently trading at $1,250 per bond.
- Martin Corporation can now issue debt at 150 basis points over U.S. treasury bonds.
- The current risk-free rate (U.S. treasury bonds) is 7 percent.
- Martin's common stock is currently selling at $32 per share.
- The expected market return is currently 15 percent.
- The beta value for Martin is 1.25.
- Martin's effective corporate income tax rate is 40 percent.
Based on these assumptions, what is the current net after-tax cost of debt for Martin Corporation?