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2. An overview of a firm's cost of debt The is the interest rate that a firm pays on any new debt financing. Perpetualcold Refrigeration

2. An overview of a firm's cost of debt

The is the interest rate that a firm pays on any new debt financing.

Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 7.30% for a period of five years. Its marginal federal-plus-state tax rate is 25%. PRCs after-tax cost of debt is (rounded to two decimal places).

At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If PRC 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.)

5.27%

4.74%

6.06%

4.22%

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