An overview of a firm's cost of debt

To calculate the after$-$tax cost of debt, multiply the before$-$tax cost of debt by

$(1-T)$

$.$

Western Gas & Electric Company $($WGC$)$ can borrow funds at an interest rate of $12\mathrm{.}50\%$ for a period of eight years. Its marginal federal$-$plus$-$state tax

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

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

At the present time, Western Gas & Electric Company $($WGC$)$ has $15-$year noncallable bonds with a face value of $$1,000$ that are outstanding. These

bonds have a current market price of $$1,136\mathrm{.}50$ per bond, carry a coupon rate of $12\%,$ and distribute annual coupon payments. The company incurs a

federal$-$plus$-$state tax rate of $25\%.$ If WGC 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.$)$

$8\mathrm{.}79\%$

$9\mathrm{.}17\%$

$6\mathrm{.}11\%$

$7\mathrm{.}64\%$