Final answer:
Bonds have the higher after-tax cost compared to preferred stock, common stock, and retained earnings. The correct answer is option A.
Step-by-step explanation:
The source of new capital with the higher after-tax cost is Bonds. When a company issues bonds, it promises to pay interest to the bondholders. This interest payment is tax-deductible, meaning the company can deduct it from its taxable income, resulting in a lower after-tax cost compared to other sources of capital.
Preferred stock and common stock do not have an after-tax cost because they represent ownership in the company and do not require interest payments. Retained earnings do not have a direct cost since they are generated from the company's profits.