For which capital component must you make a tax adjustment when calculating a firms weighted average cost of capital (WACC)?

Equity

Debt

Preferred stock

Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 10.20% for a period of four years. Its marginal federal-plus-state tax rate is 25%. OCPs after-tax cost of debt is _____? (rounded to two decimal places).

At the present time, Omni Consumer Products Company (OCP) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If OCP 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.)

3.53%

2.94%

2.65%

3.38%