The outstanding bonds of Chelsea Fashions were issued 8 years ago, with a face value of $1,000. They are currently priced at $989. These bonds mature in 10 years, have a 6 percent coupon and pay interest annually. The firm's tax rate is 31 percent, and Ten-year Treasury bonds are currently yielding 3.5 percent.
What is the firm's pre-tax cost of debt?
(round answer to whole number with two decimal points: i.e., use 1.23 percent instead of 0.0123)
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