Although it has considered raising debt capital in Europe, PNC has actually raised all of its capital in the U.S. Based on the data in Table 1-a, what is a reasonable estimate of the com- pany’s cost of debt for use in the WACC calculation? What do the results imply about the slope of PNC’s yield curve? Please use data below

Two dollar-denominated bonds are currently outstanding. Bond A has a 6.75 percent semiannual coupon, sells for 88.75 percent of par, matures on July 1, 2029, and can be called at a price of 105 on July 1, 2009. Bond B has a 9.0 percent semiannual coupon, sells for 112.25 percent of par, also matures on July 1, 2029, and can be called at a price of

107.50 on July 1, 2009. PNC’s federal-plus-state tax rate is 40 percent. Assume that the analysis is conducted on September 15, 2004, and use this as the settlement date, i.e., the day the bond will be purchased. New bonds carrying the prevailing rate could be sold to institutional investors, and no bond flotation cost would be involved.