Component cost of debt
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To help finance a major expansion, Delano Development Company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 10.25% annual coupon, paid semiannually, it sells at a price of $1,025, and it has a par value of $1,000. If Delano's tax rate is 40%, what component cost of debt should be used in the WACC calculation?
a. 5.11%
b. 5.37%
c. 5.66%
d. 5.96%
e. 6.25%
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Solution Summary
The solution explains how to component cost of debt to be used in the calculation of WACC.
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The component cost will be the after tax yield to maturity on the current bond because the YTM represents the current ...
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