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What is the annual after-tax cost of debt

Problem: The Welch Corporation is planning a zero coupon bond issue. The bond has a par value of $1000, matures in 10 years, and will be sold at an 80% discount, or for $200. The firm's marginal tax rate is 40%. What is the annual after-tax cost of debt to Welch on this issue?

a) 10.48%

b) 10%

c) 11.62%

d) 14.79%

e) 17.46%

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Finance Basics: What is the annual after-tax cost of debt

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