1. The (_____) is the interest rate that a firm pays on any new debt financing.

A. After-tax cost of debt

B. Before-tac cost of debt

2. Blue Hamster Manufacturing (BHM) can borrow funds at an interest rate of 10.20% for a period of four years. Its marginal federal-plus-state tax rate is 45%. BHMs after-tax cost of debt is (____) (rounded to two decimal places).

A. 5.61%

B. 6.17%

C. 6.45%

E. 5.33%

3. At the present time, Blue Hamster Manufacturing (BHM) has a series of fifteen-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If BHM wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)?

5.60%

6.72%

5.04%

6.44%