The existing equity is quoted at 4.20 with dividend with an imminent dividend of 0.16 due any day. The company earnings have grown at a fairly steady rate of 8% over recent years, but expectations are for growth to be 2% points better in the future.

The company's debt is 4% irredeemable bonds, which were issued at a 5% discount of 95 . They have a nominal value of 100 but are currently quoted at 80 the interest having just paid. The corporation tax rate is 25%

d) What is after tax cost of debt?

Select one:

a. 4.00%

b. 5.00%

c. 3.56%

d. 3.75%