Assume that you have been hired as a consultant by Gustav Foods, a major producer of cat food, treats, toys and litter, to estimate the firm's weighted average cost of capital. They have provided you the following information:

• Balance sheet shows a total of $20 million long-term debt with a coupon rate of 7.20%. Bonds have 16 years to maturity and a quoted price of 102.6. The bonds pay interest semiannually. The tax rate is 37%.

Given that this is all the information you have, what is the cost of debt you will use in your calculations?

	6.93%
	4.37%
	3.46%