Shop Ltd Holdings, a major retailer is contemplating selling $10 million worth of 20 year, 9% coupon (annual interest rate) bonds, each with a par value of $1 000. Because similar risk bonds offer returns greater than 9%, the firm must sell the bonds for $980 to compensate for the lower coupon interest rate. The floatation costs are 2% of the par.

Calculate the estimated pre-tax cost of bonds