A firm currently has the following capital structure which it intends to maintain. Debt: $1,250,000 par value of 7.25% bonds outstanding with an annual before-tax yield to maturity of 6.50% on a new issue. The bonds currently sell for $115 per $100 par value. Common stock: 23,000 shares outstanding currently selling for $45 per share. The firm's beta is 1.75. The rate on 3-month U.S. Treasury bill is 3.50%, and the return on the S & P 500 index is 12.25%. The firm's marginal tax rate is 34%. The company has no plans to issue new securities. The after-taxcost of debtis:

0.0479

0.0429

0.0390

0.0435

Please show your work.