Mountain Retreat and Resort Is Undergoing a Major Expansion

Multiple Choice

Mountain Retreat and Resort is undergoing a major expansion.The expansion will be financed by issuing new 15-year,$1,000 par,9% annual coupon bonds.The market price of the bonds is $1,070 each.The firm's flotation expense on the new bonds will be $50 per bond.The firm's marginal tax rate is 35%.What is the relevant cost of the new bonds for capital budgeting purposes?

A) 5.14%
B) 5.69%
C) 8.45%
D) 4.82%