Problem:
Several years ago the Junker Company sold a $1,000 par value bond that now has 15 years to maturity and an 6.50% annual coupon that is paid quarterly. The bond currently sells for $1,015.75, and the company's tax rate is 40%.
Required:
Question: What is the component cost of debt for use in the WACC calculation?
Note: Provide support for your underlying principle.