Business, 21.05.2020 03:06 alonnachambon

For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Equity Preferred stock Debt Water and Power Company (WPC) can borrow funds at an interest rate of 10.20% for a period of seven years. Its marginal federal-plus-state tax rate is 25%. WPC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,050.76 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.) 6.53% 7.51% 5.22% 7.84%

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