Suppose you are trying to estimate the after tax cost of debt for a firm as part of the calculation of the Weighted Average Cost of Capital (WACC)….

Suppose you are trying to estimate the after tax cost of debt for a firm as part of the calculation of the Weighted Average Cost of Capital (WACC). The corporate tax rate for this firm is 32%. The firm’s bonds pay interest semiannually with a 5% coupon rate and have a maturity of 18 years. If the annual yield to maturity of the bonds is 8.34%, what is the after tax cost of debt for this firm? (Answer to the nearest hundredth of a percent, e.g. 12.34%, but do not use a percent sign).