3. Cost of debt Aa Aa To calculate the after-tax cost of debt, multiply the before-tax cost of debt by (1 - T) . Water and Power Company (WPC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 40%. WPC's after-tax cost of debt is 7.33% (rounded to two decimal places). 5.66% 6.33% 7.33% 6.66% At the present time, Water and Power Company (WPC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,329.55 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? 4.38% 5.84% 4.87% 3.90%