An overview of a firm's cost of debtAn 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$)?$

Debt

Equity

Preferred stock

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

rate is $25\%.$ WGC$\text{'}$s after$-$tax cost of debt is $9\mathrm{.}38\%,($rounded to two decimal places$).$

At the present time, Western Gas & Electric Company $($WGC$)$ has $20-$year noncallable bonds with a face value of $$1,000$ that are outstanding. These

bonds have a current market price of $$1,382\mathrm{.}73$ per bond, carry a coupon rate of $13\%,$ 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.$)$

$6\mathrm{.}64\%$

$7\mathrm{.}97\%$

$5\mathrm{.}31\%$

$5\mathrm{.}98\%$

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

Debt

Equity

Preferred stock

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

rate is $25\%.$ WGC$\text{'}$s after$-$tax cost of debt is $9\mathrm{.}38\%,($rounded to two decimal places$).$

At the present time, Western Gas & Electric Company $($WGC$)$ has $20-$year noncallable bonds with a face value of $$1,000$ that are outstanding. These

bonds have a current market price of $$1,382\mathrm{.}73$ per bond, carry a coupon rate of $13\%,$ 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.$)$

$6\mathrm{.}64\%$

$7\mathrm{.}97\%$

$5\mathrm{.}31\%$

$5\mathrm{.}98\%$