Corporate Finance Quiz
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COST OF CAPITAL
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Cyclical Corp issued convertible bonds two years ago with a 4% coupon rate when similar non-convertible bonds yielded 7%. Today, the convertible bonds trade at $1,180 while similar non-convertible bonds from Cyclical yield 8.5%. The conversion premium is currently $80. For cost of capital purposes, what rate should be used for the debt component of these convertible bonds?
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