Ch 10: Assignment - The Cost of Capital 2. An 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 Preferred stock Equity Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 45%. PRC's after-tax cost of debt is 5.61% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. IF PRC 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.) O 3.90% 4.87% O 5.60% 4.38% Grade It Now Save & Continue Continue without saving