Corporation X Needs $1,000,000 and Can Raise This Through Debt

Multiple Choice

Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 10 percent, orpreferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, theafter-tax cost of each is

A) debt: $60,000; preferred stock: $42,000.
B) debt: $60,000; preferred stock: $70,000.
C) debt: $100,000; preferred stock: $70,000.
D) debt: $100,000; preferred stock: $42,000.