J and B, Inc. has $5 million of debt outstanding with a coupon rate of 12%.

J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm’s tax rate is 40%, what is the cost of debt to J & B?
A.
5.6%
B.
8.4%
C.
14.0%
D.
12.0%

 

Solution