2. An overview of a firm's cost of debt The before-tax cost of debt is the interest rate that a firm pays on any new debt financing Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is a 25%. TWC's after-tax cost of debt is 9.38% (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 15-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 25%. 1 TWC 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) 6.88% 6.11% 9.17 7.64%