Battlefield is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 116% of face value. The issue makes semiannual payments and has an embedded coupon payment of 5.6% annually. If the tax rate is 38%, what is the aftertax cost of debt?

Battlefield is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 116% of face value. The issue makes semiannual payments and has an embedded coupon payment of 5.6% annually. If the tax rate is 38%, what is the aftertax cost of debt?

a. 1.82%

b. 2.63%

c. 1.89%

d. 2.01%

e. 2.76%