The pre-tax cost of debt for a new issue of debt is determined by

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The pre-tax cost of debt for a new issue of debt is determined by the yield to maturity of outstanding bonds. This is because the yield to maturity reflects the market's required rate of return on existing debt, which serves as a benchmark for new bond issuances. The coupon rate of existing debt may be used as an initial benchmark, but it does not necessarily reflect changes in market conditions or investor sentiment. The investor's required rate of return on issued stock is not relevant for determining the cost of debt.

The Pre-Tax Cost of Debt for a New Issue of Debt