The capital structure of a company is composed of debt and equity as follows. Given the following information, what is the after-tax cost of debt in the capital structure? The tax rate is %30.

	Equity	Debt
# of outstanding shares	10,000	-
Stock price (each)	$50	-
Expected dividend per share	$4	-
Dividend growth rate	3%	-
# of outstanding bonds	-	5,000
Coupon rate	-	5%
Bond price (each)	-	$950
Years to maturity	-	7

Multiple Choice

a. 5%.

b. 5.9%.

c. 4.1%.

d. 3.5%.

e. 3%.