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    Component Cost of Capital

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    A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11 percent. A new issue would have a floatation cost of 5 percent of the $1,125 market value. The bonds mature in 10 years. The firm's average tax rate in 30 percent and its marginal tax rate is 34 percent.

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    Solution Summary

    Component Cost of Capital is embedded.