Several Years Ago the Jakob Company Sold a $1,000 Par

question 33

Multiple Choice

Several years ago the Jakob Company sold a $1,000 par value,noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually.The bond currently sells for $875,and the company's tax rate is 40%.What is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations.

• A) 4.58%
• B) 4.97%
• C) 3.78%
• D) 4.92%
• E) 5.87%

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Definitions:

Weighted Average Method

An inventory costing method that averages the cost of all similar items in inventory, assigning a single cost to each unit regardless of purchase date.

Cost Per Equivalent Unit

A calculation used in process costing that divides the total cost by the number of units produced, taking into account partial completion of units at the end or beginning of an accounting period.

Conversion Costs

The combined costs of direct labor and manufacturing overheads that are incurred in turning raw materials into finished products.

Manufacturing Overhead

Indirect factory-related costs that are incurred when producing a product, such as utilities, maintenance, and quality control.