Trader Bubba Industries must choose between solar and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The solar truck will cost more but will be less expensive to operate; it will cost $70,000, whereas the electric-powered truck will cost $60,000. The life for both types of truck is estimated to be 8 years, during which time the net cash flows for the solar-powered truck will be $20,000 per year and those for the electric-powered truck will be $12,000 per year.

Trader Bubba Industries assets are $400 million, financed through bank loans, bonds, preferred stocks, and common stocks. The amounts are as follows:

Bank loans: $50 million borrowed at 6%

Bonds: $200 million, paying 8% coupon with semi-annual payments, and maturity of 10 years. Trader Bubba sold its $1,000 par-value bonds for $1020 and had to incur $20 flotation cost per bond.

Preferred Stocks: $100 million, paying $20 dividends per share. Trader Bubba sold its preferred shares for $220 and had to incur $20 per share flotation cost.

Common Stocks: $50 million, beta is 2, the risk-free rate is 2 percent, and the market rate is 8%.

Tax rate: 25 percent

What is the after-tax cost of the bonds?