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Computing Individual or Component Costs of Capital

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11-2 (Individual or component costs of capital) Compute the cost of the following:

a. A bond selling to yield 7 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 34 percent. In other words, 7 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest).

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