A corporate bond has a face value of $1,000 and a coupon rate of 5%. The bond matures in 15 years

and has a current market price of $925. If the corporation sells more bonds, it will incur flotation
costs of $25 per bond.

If the corporate tax rate is 35%, what is the after-tax cost of debt capital?
A) 3.74% B) 5.29% C) 6.78% D) 4.45%

A