S. Claus & Co. is planning a zero coupon bond issue that has a par value of $1,000 and matures in 2 years. The bonds will be sold today at a price of $930.00. If the firm's marginal tax rate is 40.00%, what is the annual after-tax cost of debt to the company on this issue? Do not round your intermediate calculations.
A. 2.75%
B. 2.73%
C. 2.22%
D. 2.28%
E. 1.84%
Answer: C
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