Rollins Corporations 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 $1,200 in the market now. The price of firms newly issued preferred stock is $100 and the flotation cost is 5 percent. The company pays an annual dividend of $12 to its preferred stockholders. Rollins' beta is 1.2, the risk?free rate is 10 percent, and the market risk premium (which is the difference between market return and risk free rate) is 5 percent. Rollins is a constant growth firm which just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8 percent. The firm's policy is to use a risk premium of 4 percentage points when using the Debt -cost-plus-risk-premium method to find k_s. The firm's net income is expected to be $1 million, and its dividend payout ratio is 40 percent. Flotation costs on new common stock total 10 percent, and the firm's marginal tax rate is 40 percent.

What is Rollins' after-tax cost of debt?

	A.	a. 10.0%
	B.	b. 9.1%
	C.	c. 8.6%
	D.	d. 8.0%
	E.	e. 7.2%