Estimating the Cost of Debt Capital

Kellogg Company manufactures cereal and other convenience food under its many well$-$known brands such as Kellogg's $,$ Keebler $,$ and Cheez$-$It $.$ The company, with over $$13\mathrm{.}5$ billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its $2015$ fiscal year, it had $$6\mathrm{.}5$ billion in total debt. At the end of fiscal year $2015,$ its total debt had increased to $$6\mathrm{.}6$ billion. Its fiscal $2015$ interest expense was $$227$ million, and its assumed statutory tax rate was $37\%.$

a$.$ Compute the company's average pretax borrowing cost. $($Hint: Use the average amount of debt as the denominator in the computation.$)$

Round your answer to one decimal place $($ex: $0,0345=3\mathrm{.}5\%).$

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b$.$ Assume that the book value of its debt equals its market value. Then, estimate the company's cost of debt capital.

Round your answer to one decimal place $($ex: $0\mathrm{.}0345=3\mathrm{.}5\%).$

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