1. The CFO of Vaimato Industries needs to borrow money (a one-year loan) in the coming months to support the start up of a new project. The interest rate in the U.S. for a dollar loan was quoted as 14 percent (before taxes). A euro loan is also available at an interest rate of 8.60 percent. In both cases the marginal tax rate is 40 percent. The spot exchange rate (American terms) is $1.2135/ and the one-year forward rate is $1.2500/. What is the after-tax cost of debt for the cheapest source of funds?

a. 14.00%

b. 13.87%

c. 10.55%

d. 8.40%

e. 8.32%