AAPL Inc. is a publicly traded company that has $120 million in bank loan on its books, with a stated interest rate of 4% and $150 million in publicly traded bonds, with a coupon rate of 3.7%. The company currently has a bond rating of BBB, with a default spread of 1.7%. If the current T.Bill rate is 1%, the ten-year T.Bond rate is 5.3% and the marginal tax rate is 35%, what is the pre-tax cost of debt?

Select one:

a. 4%

b. 2.50%

c. 3.50%

d. 7.0%

e. 5.20%

f. 3.70%