Question $7$

$\frac{1}{1}pt$

Rollins Corporation is constructing its MCC schedule. Its target capital structure is $20$ percent debt, $20$ percent preferred stock, and $60$ percent common equity. Its bonds have a $12$ percent coupon, paid semiannually, a current maturity of $20$ years, and sell for $$1,000.$ The firm's marginal tax rate is $40$ percent. Which of the following is Rollins' component cost of debt?

$8\mathrm{.}4\%$

$5\mathrm{.}3\%$

$7\mathrm{.}2\%$