1. Joes Coffee Ltd. needs to raise money to open a second location and is considering two options:

• Option A is to borrow $100,000 from a local bank, at an interest rate of 5% per year.

• Option B is to issue 1000 shares of $4 preferred stock for $100 each.

  Assuming that the companys tax rate is 25%, calculate the annual after-tax cost (in dollars) of each option.

Select one:

a.

1. Option A costs $5,000 and Option B costs $3,000

b.

1. Option A costs $3,750 and Option B costs $3,200

c.

1. Option A costs $5,000 and Option B costs $4,000

d.

1. Option A costs $3,750 and Option B costs $4,000