The before$-$tax cost of debt grad is the interest rate that a firm pays on any new debt financing.

Perpetualcold Refrigeration Company $($PRC$)$ can borrow funds at an interest rate of $12\mathrm{.}50\%$ for a period of five years. Its marginal federal$-$plus$-$state

tax rate is $40\%.$ PRC$\text{'}$s after$-$tax cost of debt is

$($rounded to two decimal places$).$

At the present time, Perpetualcold Refrigeration Company $($PRC$)$ 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\mathrm{.}56$ per bond, carry a coupon rate of $10\%,$ and distribute annual coupon payments. The company

incurs a federal$-$plus$-$state tax rate of $40\%.$ If PRC wants to issue new debt, what would be a reasonable estimate for its after$-$tax cost of debt

$($rounded to two decimal places$)?$

$2\mathrm{.}35\%$

$2\mathrm{.}12\%$

$1\mathrm{.}88\%$

$2\mathrm{.}82\%$