Assignment: Chapter 11 Cost of Capital Attempts 2.

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 Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (rounded to two decimal 40%. TWC's after-tax cost of debt is Keep the Highest/3 O 4.22% At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal- plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? O 3.80% O 5.06% O 4.85% (1 + T)od of four years. Its marginal federal-plus-state tax rate is (1-T)

2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cust of debt by Three Waters Company (TWC) can borrow funds at an interest rate of 12.50 it [(1+T) od of four years. Its marginal federal-plus-state tax rate is 40%. TwC's after-tax cost of debt is (rounded to two decimal At the present time, Three Waters Company (TWC) has 10 -year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,270.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federalplus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? 4.22% 3.80% 5.06% 4.85%