On this problem, the only part I keep getting wrong on my homework portal (we get unlimited opportunities to check answers for correctness) is part (d), Estimate AT&T's effective (that is, average) tax rate from information in its income statement.

The answer on this site seems like it should be correct but like I said, it isn't. And that answer is:

Effective tax rate = tax expense/profit before tax = 1162/18238 = 6.37% or 6.4% rounded to one decimal place.

Do you have any suggestions?

The entire problem follows:

Estimating Cost of Debt Capital

Assume the December 31, 2010, partial financial statements taken from the annual report for AT&T (T) follow.

Operating revenuesWireless service$ 53,510Voice28,315Data27,479Directory3,935Other11,041Total operating revenues124,280Operating expensesCost of services and sales52,263Selling, general and administrative33,065Depreciation and amortization19,379Total operating expenses104,707Operating income19,573Other income (expense)Interest expense(2,994)Equity in net income of affiliates762Other income, net897Total other income (expense)(1,335)Income from continuing operations before income taxes18,238Income tax (benefit) expense(1,162)Income from continuing operations19,400Income from discontinued operations, net of tax779Net income$ 20,179

Current liabilitiesDebt maturing within one year$ 7,196$ 7,361Accounts payable and accrued liabilities20,05521,260Advanced billed and customer deposits4,0864,170Accrued taxes721,681Dividends payable2,5422,479Total current liabilities33,95136,951Long-term debt58,97164,720Deferred credits and other noncurrent liabilitiesDeferred income taxes22,07023,579Postemployment benefit obligation28,80327,847Other noncurrent liabilities12,74313,226Total deferred credits and other noncurrent liabilities63,61664,652Stockholders' equityCommon stock ($1 par value, 14,000,000,000 authorized at

December 31, 2010 and 2009; issued 6,495,231,088 at

December 31, 2010 and 2009)6,4956,495Additional paid-in capital91,73191,707Retained earnings31,79221,944Treasury stock (584,144,220 at December 31, 2010 and

593,300,187 at December 31, 2009, at cost)(21,083)(21,260)Accumulated other comprehensive income2,7122,678Noncontrolling interest303425Total stockholders' equity111,950101,989Total liabilities and stockholders' equity$ 268,488$ 268,312

Common StockBalance at beginning of year6,495$ 6,495Issuance of shares----Balance at end of year6,495$ 6,495Treasury SharesBalance at beginning of year(593)$ (21,260)Purchase of shares----Issuance of shares9177Balance at end of year(584)(21,083)Retained EarningsBalance at beginning of year$ 21,944Net income ($3.35 per share)19,864Dividends to stockholders ($1.69 per share)(9,985)Other(31)Balance at end of year$ 31,792(a) How much interest expense did AT&T incur during 2010?

(b) What is the book value of AT&T's interest-bearing debt at the end of 2010?

At the beginning of 2010?

Average debt for 2010?

(c) Estimate AT&T's 2010 pretax cost of debt capital. (Round your answer to one decimal place.)

(d) Estimate AT&T's 2010 effective (that is, average) tax rate from information in its income statement. (Round your answer to one decimal place.)

(e)Using your rounded answer from (c) above, estimateAT&T's 2010 after-tax cost of debt capital. The company's statutory tax rate is: 35% (Round your answer to one decimal place.)