C is corrent. The requirement is to calculate the weighted-average after-tax cost of capital. The after-tax cost of capital for the bonds is equal to 7% [10% × (100% – 30% tax rate)], and the weighted-average cost of capital for the company is equal to 9.8% as calculated below.
A is incorrect. This is lower than the weighted-average cost of capital.
A is incorrect. This is lower than the weighted-average cost of capital.
D is incorrect. This is less than the cost of any component of capital.
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