A company is expected to issue new bonds with a face value of $1,000. According to the indenture, the annual coupon rate is expected to be 8% and the bonds will mature in 18 years. Similar bonds are currently priced at 108% of par (or face value). Coupons will be paid annually, what is the before-tax cost of debt (in percent)?

7.48%

8.00%

6.85%

7.19%