Detailed Answer
Answer (C) is correct. Annual cash interest is $4,500,000 {[$48,000,000 ÷ (1.0 – .04 flotation cost)] × .09}. The cost of the new bonds equals the annual cash interest divided by the net issue proceeds, times one minus the tax rate, or 5.63% [($4,500,000 ÷ $48,000,000) × (100% – 40% .