Suppose a Firm Wants to Borrow $200 Million for 5

Suppose a firm wants to borrow $200 million for 5 years to fund capital expenditures, and is considering the choice of a bank loan or a public issue through an investment banking firm as underwriter.For simplicity, we will assume that in either case the firm will issue pure-discount debt.The bank demands a 10.25% interest rate (with no fee) , while the underwriter states that the interest cost will be 9.25 percent with 3% flotation costs.Which funding source provides the lower effective interest cost?

A) the bank loan
B) the public issue
C) both provide exactly the same effective interest cost