Question

Kenny Electric Company’s noncallable bonds were issued several years ago and now have 20 years to maturity. These

bonds have a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm’s tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

a. 5.08%

Finance