Pickerington Communications Inc. (PCI) has developed a powerful server that would be used for the companys internet activities. The company has the following capital structure, which is considered optimal. Debt is 30%, preferred stock is 10%, and common stock is 60%. PCIs tax rate is 25%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. The company paid a dividend of $3.70 per share last year (D₀), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and PCIs beta is 1.3.

The following information is available for managerial finance analysis:

Preferred stock: New preferred stock could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs per share is $5.

Debt: The companys long-term debt has a yield to maturity of 9% i.e., the before-tax cost of debt is 9%.

Common stock: All common stock will be raised internally by reinvesting earnings.

The company believes that it can issue long-term corporate bonds next year that will have a yield to maturity of 13% and a coupon rate of 10%. However, the company is not sure about the tax rate for next year. Calculate the after-tax cost of debt under each of the following conditions:

i. the tax rate remains at 25%

ii. the tax rate reduces to 20%

iii. the tax rate increases to 35%

The companys management is meeting today to discuss ways to minimize its cost of capital