Kimberly-Clark has an opportunity to invest $500,000 today in a new project that will

generate positive free cash flows for five years. The free cash flows will be $100,000 per

year for the first three years, then $250,000 per year for the final two years. K-C maintains 40%

debt, 50% common equity, and 10% preferred stock, with total assets valued at $100 million.

The company also has a marginal tax rate of 21%.

Currently K-C bonds sell for $1,050. They have five years to maturity and a 10% coupon rate, and $1,000 par value. The bond makes semi-annual coupon payments. What is the before-tax cost of debt for K-C?