2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 35%. WGC's after-tax cost of debt is (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If WGC 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.) 4.60% O 5.18 % O 6.61% O 5.75%
2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 35%. WGC's after-tax cost of debt is (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If WGC 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.) 4.60% O 5.18 % O 6.61% O 5.75%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Man.6
Transcribed Image Text:2. An overview of a firm's cost of debt
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by
Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax
rate is 35%. WGC's after-tax cost of debt is
(rounded to two decimal places).
At the present time, Western Gas & Electric Company (WGC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These
bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a
federal-plus-state tax rate of 35%. If WGC 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.)
O 4.60%
O5.18%
O 6.61%
O 5.75%
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