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Hello team, I was wondering if I could receive help on the following problem (review attachment for problem). (1) Also, for the first dropdown, I

Hello team,

I was wondering if I could receive help on the following problem (review attachment for problem).

(1) Also, for the first dropdown, I chose "after-tax cost of debt". The options were "after-tax cost of debt" and "before-tax cost of debt." Please let me know if this is correct or not.

(2) In the second dropdown menu, the options read: 6.50%, 7.27%, 7.65%, 8.42%.

(3) For the word problem, if possible, please explain why you've chosen the correct answer you believe to be the one. If anything, I need to understand how to go about deciphering this problem.

Thank you for any help you can provide!

image text in transcribed

Ch 10- Assignment - The Cost of Capital Back to Assignment Attempts Keep the Highest / 3 2. An overview of a firm's cost of debt The after-tax cost of debt is the interest rate that a firm pays on any new debt financing. Western Gas & Electric Company (WGC) 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%. WGC's after-tax cost of debt is (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) 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 WGC 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 3.38% 2.65% 2.35% 2.94%

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