2. An overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm's weighted average cost of capital (WACC)? O Debt O Preferred stock O Equity Andalusian Limited (AL) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 25%. AL after-tax cost of debt is (rounded to two decimal places). At the present time, Andalusian Limited (AL) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,438.04 per bond, carry a coupon rate of 14%, and distribute annual coupon payments. The company incurs a federal-plus state tax rate of 25%. If AL 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 3.10% O 3.57% O2.48% O 3.72%

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