lable $9\mathrm{.}1$

A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.

Source of Capital

Long $-$ term debt

Preferred stock

Common stock equity

Target Market

Proportions

$20\%$

$10$

$70$

Debt: The firm can sell a $12-$ year, $$1,000$ par value, $7$ percent bond for $$960.$ A flotation cost of

$2$ percent of the face value would be required in addition to the discount of $$40.$

the firm's marginal tax rate is $40$ percent.

The firm's after $-$ tax cost of debt is

$($See Table $9\mathrm{.}1)$

A$.8\mathrm{.}13$ percent

B$.4\mathrm{.}67$ percent

C$.8$ percent

D$.3\mathrm{.}25$ percent