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2. An overview of a firm's cost of debt Aa Aa The before-tax cost of debt is the interest rate that a firm pays on
2. An overview of a firm's cost of debt Aa Aa The before-tax cost of debt is the interest rate that a firm pays on any new debt financing. Cold Goose Metal works (CGMw) can borrow funds at an interest rate of 9.70% for a period of four years. Its marginal federal-plus-state tax rate is 35%. CGMW's after-tax cost of debt is 9.70% (rounded bo two deamal places) At the present time, Cold Goose Metal Works (CGM) has a series of twenty-year noncallable bonds with a face value of $1,000 that are outstanding. These bands have a current market price of $1,382.73 per band, carry a coupon rate of 13%, and distribute annual coupon payments. The oompany incurs a federal-plus-state tax rate of 35%. If CGMw wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal plaoes)? 6.61% 5.75% 4.60% 6.90%
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