Three Waters Company (TWC) can borrow funds at an interest rate of 7.30% for a period of five years. Its marginal federal-plus-state tax rate is 25%. TWCs after-tax cost of debt is 5.48% (rounded to two decimal places).

At the present time, Three Waters Company (TWC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,438.04 per bond, carry a coupon rate of 14%, and distributed annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If TWC 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.) 2.48% 3.72% 3.57% 3.10%