An overview of a firm's cost of debt

The

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

Water and Power Company $($WPC$)$ can borrow funds at an interest rate of $10\mathrm{.}20\%$ for a period of four years. Its marginal federal$-$plus$-$state tax rate is

$25\%.$ WPC$\text{'}$s after$-$tax cost of debt is

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

At the present time, Water and Power Company $($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.$)$

$7\mathrm{.}84\%$

$6\mathrm{.}53\%$

$5\mathrm{.}22\%$

$7\mathrm{.}51\%$