Question: S. Claus & firm is planning a zero coupon bond issue. The bond has a par value of $1,000, matures in 2 years, and will be sold at a price of $826.45. The company's marginal tax rate is 40%. Determine the annual after-tax cost of debt to the company on this issue?
[A] 8.0%
[B] 10.0%
[C] 4.0%
[D] 6.0%
[E] 12.0%