Donald borrowed $100,000 from his employer at an annual rate of 1% interest last year to cover his gambling debts. Assume the following:

• Donald has made no principal repayments on this loan
• The prescribed rate of interest was 2% when the loan was extended to Donald, and this rate has not changed.
• Donald is subject to a combined tax rate of 30 percent.

What is the after tax cost of the loan to Donald for the current year?

a. $300

b. $600

c. $1,000

d. $1,300