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FinanceQ&A LibraryTo calculate the after-tax cost of debt, multiply the before-tax cost of debt byWestern Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of four years. Itsmarginal federal-plus-state tax rate is 40%. WGC's after-tax cost of debt is(rounded to two decimalplaces)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 of13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If WGCwants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimalplaces)?4.78%5.31%4.25%6.37%Question

Asked Nov 25, 2019

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Step 1

**Question 1:**

To calculate the after-tax cost of debt, multiply the before-tax cost of debt by “** 1-Tax Rate**” (for example, 4%*(1-10%) = 3.6%).

Step 2

**Question 2:**

**Calculation of After-tax Cost of Debt:**

The after-tax cost of debt is ** 6.66%**.

Step 3

**Question 3:**

**Calculation of After-tax Cost of Debt:**

The after-tax cost of debt is **5.31%**.

**Excel Spreadsheet:**

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