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 four years. Its marginal federal-plus-state tax rate is 40%. 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 40%. 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)? 4.78% 5.31% 4.25% 6.37%

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
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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 four years. Its
marginal federal-plus-state tax rate is 40%. 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 40%. 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)?
4.78%
5.31%
4.25%
6.37%
Transcribed Image Text: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 four years. Its marginal federal-plus-state tax rate is 40%. 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 40%. 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)? 4.78% 5.31% 4.25% 6.37%
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