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

Water and Power Company $($WPC$)$ can borrow funds at an interest rate of $12\mathrm{.}50\%$ for a period of eight years. Its marginal federal$-$plus$-$state tax rate is

$25\%.$ WPC$\text{'}$s after$-$tax cost of debt is

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

At the present time, Water and Power Company $($WPC$)$ 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 $25\%.$ If WPC 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.$)$

$3\mathrm{.}38\%$

$2\mathrm{.}65\%$

$2\mathrm{.}35\%$

$2\mathrm{.}94\%$