Question

1. Which of the following is not a capital component when calculating the weighted average cost...

1.

Which of the following is not a capital component when calculating the weighted average cost of capital (WACC)?

Marketable securities

Preferred stock

Long-term debt

Common equity

To help finance a major expansion, a 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 $985, and it has a par value of $1,000. If the company’s tax rate is 10%, what component cost of debt should be used in the WACC calculation?

8.93%

9.92%

11.02%

12.33%
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