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Component cost of debt

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Hamilton Company's 8 percent coupon rate, quarterly payment, $1,000 par value bond, which matures in 20 years, currently sells at a price of $686.86. The company's tax rate is 40 percent. Based on the nominal interest rate, not the EAR, what is the firm's component cost of debt for purposes of calculating the WACC?

a. 3.05%

b. 7.32%

c. 7.36%

d. 12.20%

e. 12.26%

PLEASE SHOW ALL WORK

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The solution explains how to calculate the component cost of debt.

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The component cost of debt is the YTM on the current debt. The details of the ...

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