1) To calculate the after-tax cost of debt, multiply the before-tax cost of debt by

Option A: ( 1 + T )

Option B: ( 1 - T )

2) Andalusian Limited (AL) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax rate is 45%. ALs after-tax cost of debt is ? (rounded to two decimal places).

Option A: 5.87%

Option B: 9.70%

Option C: 5.34%

Option D: 4.54%

3) At the present time, Andalusian Limited (AL) 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 45%. If AL wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)?

Option A: 5.32%

Option B: 5.91%

Option C: 7.09%

Option D: 6.80%