2. The cost of debt What do lenders require, and what kind of debt costs the company? The cost of debt that is relevant when companies are evaluating new investments is the marginal cost of new debt to be raised to finance the new project. Consider the case of Canoqola Domain Inc. Canoqola Domain Inc. can issue a 30-year debt security that pays an annual coupon payment of $80. The bond, which has a face value of $1,000, is trading at par. Based on this information, determine Canoqola Domain Inc.'s after-tax cost of debt if the combined marginal corporate tax rate is 35%. Canoqola Domain Inc.'s after-tax cost of debt is: O 4.4200% O 4.1600% O 5.2000% O 4.6800% Canoqola Domain Inc.'s CFO has pointed out that it will incur a flotation cost of 3% when issuing the bonds. Remember that the flotation costs will be subtracted from the amount the firm will receive from issuing its new bonds. Determine the company's after-tax cost of debt when it takes the flotation cost into account. Taking flotation cost into account, Canoqola Domain Inc.'s after-tax cost of debt is: O 5.4042% O 5.1340% 0 4.8638% O 5.6744%