Calculate the after-tax component cost of capital, kc, for a 7.5 percent convertible debenture sold at par

Question:

Calculate the after-tax component cost of capital, kc, for a 7.5 percent convertible debenture sold at par and due to mature in 25 years. The conversion ratio is 25, and conversion is expected to occur at the end of 10 years, when the common stock price is expected to be $54 a share. The company has a 40 percent marginal tax rate. Is there any reason for you to believe that this estimate may be biased up or down?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...