KatyDid Clothes has a $150 million ($1000 face value) 15-year bond issue selling for 106% of par that carries a coupon rate of 8%, paid semi-annually. What would be KatyDid's before-tax component cost of debt?

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The before-tax component cost of debt is the yield to maturity (YTM) on the bond. Since the bond sells for 106% of par, its price is $1,060. The coupon payment is $40 (8% of $1,000, paid semi-annually). Using the bond price, coupon payment, face value, and time to maturity, the YTM is calculated to be approximately 7.34% annually.

KatyDid Clothes Has a $150 Million ($1000 Face Value) 15-Year