Determine the (After-Tax)component Cost of a $50 Million Debt Issue

Multiple Choice

Determine the (after-tax) component cost of a $50 million debt issue that the Mattingly Corporation is planning to place with a large insurance company. Assume the company is subject to a 40% tax rate. This long-term debt issue will yield 12% to the insurance company.

A) 4.8%
B) 7.2%
C) 12.0%
D) None of the above