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, or preferred stock at an annual cost of 7 percent. If the corporation has a 40 percent tax rate, the after-tax cost of each is ________.

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