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Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 12.50% for a...

Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 40%. OCP’s after-tax cost of debt is (rounded to two decimal places).

At the present time, Omni Consumer Products Company (OCP) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,181.96 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 OCP 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.)

5.16%

7.42%

6.45%

5.81%

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