The Jackson Co

The Jackson Co. is currently in the business of making kitchen cabinets. It has $400,000 in outstanding bonds with a coupon rate of 8% and a yield-to-maturity of 7.5%. The company is
Seeking additional financing so it can start a new venture, which involves the sales and installation
Of patio rooms, including spas and hot tubs. Its biggest competitor, who specializes solely in patio
Rooms, has $600,000 in outstanding bonds with a 9% coupon rate and an 11% yield-to-maturity.
Jackson's marginal tax rate is 35% and the competitor's marginal tax rate is 34%. What after-tax rate
Cost of debt should the Jackson Co. use in its WACC calculation?

A) 4.88%
B) 5.85%
C) 5.94%
D) 7.15%
E) 7.26%