Cost of debt in business valuation

Hi,

I have a question from BPP book as below:
“Nessie Inc is considering making a bid for 100% of Patsy Inc, a company in a completely different industry. The bid of $200 million, which is expected to be accepted, will be financed entirely by new debt with a post-tax cost of debt of 7%.

Pre-acquisition information

Nessie
Nessie has debt finance totalling $60 million at a pre-tax rate of 7.5%. There are 50 million equity shares with a current market value of $22 each and an equity beta of 1.37

Patsy
Patsy has an equity beta of 2.5 and 65 million shares with a total current market value of $156 million. Current debt – which will also be taken over by Nessie – is $12.5 million.

Post-acquisition information
If the acquisition goes ahead, Nessie will experience an improvement in its credit rating and all existing debt will be charged at a rate of 7%.
Cash flows after year 5 will grow at a rate of 1.5% per annum

General information
The risk-free rate is 5.2% and the market risk premium is 3%. Corporation tax rate is 28%. Debt beta is 0”

My question is how can I determine the cost of debt of the group after acquisition to calculate the WACC? From the question, it is saying that after acquisition, all existing debt will be charged at a rate of 7%, which is unclear whether it is pre or post tax. Also because it said that the cost of debt apply to existing debt, doesn’t that mean the new debt used to fund the acquisition at the post tax cost of debt = 7% will be considered separately?

If I understand as the above, I would treat combined current debt of Nessie and Pasty of 62.5 into one group with pre-tax cost of debt = 7%, while the new debt of 200m will have after-tax cost at 7%. Then I have to convert everything into post-tax rate and do a weighted cost of debt to get to the final cost of debt number for WACC.

In the answer, they treated all debt of 262m after acquisition to be at 7% post-tax.

Appreciate if you can help me understand why I understood wrongly. Also is there any indication from the question above that the debts after acquisition are post-tax? If I had this situation in the exam, should I just make my assumption on whether the cost is pre or post tax when it is unclear like this?

Thank you.