At the present time, Three Waters Company (TWC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. 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)?

6.62%

7.61%

7.94%

5.96%