Problem:
Mountain Retreat and Resort is undergoing a major expansion. The expansion will be financed by issuing a 15-year, $1000 par, 9% annual coupon bonds. The market price of the bonds is $1070 each. The firm's rotation expense on the new bond is $50 per bond. The firm's marginal tax rate is 35%.
Required:
Question: What is the relevant cost of the new bonds for capital budgeting purposes?
A. 5.69%
B. 8.45%
C. 4.82%
D. 5.14%
Note: Please provide reasons to support your answer.