Jay's Bakery Has a Bond Issue Outstanding That Matures in Eight

Multiple Choice

Jay's Bakery has a bond issue outstanding that matures in eight years. The bonds pay interest semiannually. Currently, the bonds are quoted at 97.8 percent of face value and carry a coupon rate of 5.7 percent. What is the aftertax cost of debt if the tax rate is 21 percent?

A) 4.88 percent
B) 4.16 percent
C) 5.87 percent
D) 4.78 percent
E) 6.05 percent