1. For which capital component must you make a tax adjustment when calculating a firms weighted average cost of capital (WACC)?

Equity

Preferred stock

Debt

2. Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax rate is 25%. OCPs after-tax cost of debt is ? (rounded to two decimal places).

3, At the present time, Omni Consumer Products Company (OCP) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,181.96 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.)

9.67%

8.06%

9.27%

7.25%