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$)?$

Preferred stock

Equity

Debt

Water and Power Company $($WPC$)$ can borrow funds at an interest rate of $9\mathrm{.}70\%$ for a period of five years. Its marginal federal$-$plus$-$state tax rate is $25\%.$ WPC$\text{'}$s after$-$tax cost of debt is $q,7\mathrm{.}28\%($rounded to two decimal places$).$

At the present time, Water and Power Compe$\_$ny $($WPC$)$ has $5-$year noncallable bonds with a face value of $$1,000$ that are outstanding. These bonds have a current market price of $$1,050\mathrm{.}76$ per bond, carry a coupon rate of $10\%,$ and distribute annual coupon payments. The company incurs a federal$-$plus$-$state tax rate of $25\%.$ 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$)?($Note: Round your YTM rate to two decimal place.$)$

$7\mathrm{.}51\%$

$5\mathrm{.}88\%$

$5\mathrm{.}22\%$

$6\mathrm{.}53\%$