An overview of a firm's cost of debt

For which capital component must you make a tax adjustment when calculating a firm's weighted average cost of capital $($WACC$)?$

Equity

Debt

Preferred stock

Omni Consumer Products Company $($OCP$)$ can borrow funds at an interest rate of $10\mathrm{.}20\%$ for a period of seven years. Its marginal federal$-$plus$-$state

tax rate is $40\%.$ OCP's after$-$tax cost of debt is

$($rounded to two decimal places$).$

At the present time, Omni Consumer Products Company $($OCP$)$ 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\mathrm{.}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 OCP wants to issue new debt, what would be a reasonable estimate for its after$-$tax cost of debt $($rounded to two

decimal places$)?$

$3\mathrm{.}90\%$

$5\mathrm{.}84\%$

$4\mathrm{.}87\%$

$5\mathrm{.}60\%$