Peaceful Book Binding Company is considering issuing a new 25-year debt issue that would pay an annual coupon payment of $95. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value.

PBBCs CFO has pointed out that the firm would incur a flotation cost of 3% when initially issuing the bond issue. Remember, the flotation costs will besubtracted from the proceeds the firm will receive after issuing its new bonds. The firms marginal federal-plus-state tax rate is 30%.

To see the effect of flotation costs on PBBCs after-tax cost of debt (generic), calculate the after-tax cost of the firms debt issue with and without its flotation costs, and select the correct after-tax costs (in percentage form):

After-tax cost of debt without flotation cost:
After-tax cost of debt with flotation cost:

This is the cost of _____ debt, and it is different from the average cost of capital raised in the past.