$10\mathrm{.}26$ Tri$-$States Gas Producers expects to borrow $$800,000$ for field

engineering improvements. Two methods of debt financing are possible$-$

borrow it all from a bank or issue debenture bonds. The company will pay an

effective $8\%$ per year to the bank for $8$ years. The principal on the loan will be

reduced uniformly over the $8$ years, with the remainder of each annual payment

going toward interest. The bond issue will be for $800$ ten$-$year bonds of $$1000$

each that require a $6\%$ per year dividend payment.

$($a$)$ Which method of financing is cheaper after an effective tax rate of $40\%$ is

considered?

$($b$)$ Which is the cheaper method using a before$-$tax analysis? Is it the same as

the after$-$tax choice?