Rollins Corporation’s target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,200 in the market now. The price of firm’s newly issued preferred stock is $100 and the flotation cost is 5 percent. The company pays an annual dividend of $12 to its preferred stockholders. Rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium (which is the difference between market return and risk free rate) is 5 percent. Rollins is a constant growth firm which just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8 percent. The firm's policy is to use a risk premium of 4 percentage points when using the Debt -cost-plus-risk-premium method to find ks. The firm's net income is expected to be $1 million, and its dividend payout ratio is 40 percent. Flotation costs on new common stock total 10 percent, and the firm's marginal tax rate is 40 percent.

What is Rollins' after-tax cost of debt?

A. 10.0%

B. 9.1%

C. 8.6%

D. 8.0%

E.7.2%