The Cost of Capital for Spectrum Corporation You have recently been hired by Spectrum Corporation in its treasury management department. Spectrum was founded ten years ago by Tom Sawyer and produces electrical equipment. The company is privately owned by Tom Sawyer and his family, and it had sales of $282.6 million last year. Spectrum primarily sells its products directly to its business customers throughout the country. Spectrums growth to date has come from its quality and price competitiveness. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process. Tom has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Tom would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Tom wants you to use a similar company to estimate the cost of capital (WACC) for Spectrum, and he has chosen Eaton Corporation (ticker: ETN), which has the product line somewhat similar to that of Spectrum, as a representative company. The following questions will lead you through the steps to calculate this estimate.

3. You now need to calculate the cost of debt for Eaton Corporation. Use finramarkets.morningstar Under Market Data Center Bonds Guide, choose search then enter ETN as the Symbol/CUSIP, and find the yield to maturity for each of Eaton Corporations non-callable bonds (you should use bonds with the issuer name 3 EATON CORP). Click on each bond to find its date of issuance, total value, and other details. a) What are the weighted average costs of debt for Eaton Corporation using the book value weights of the bonds? What are the weighted average costs of debt for Eaton Corporation using the market value weights of the bonds? (Note that for the questions in part 4a, use only the values of the bonds reported on FINRA website to calculate the book value and market value weight of each bond. If the value of a bond is not reported on this website, simply ignore that specific bond). b) Does it make a difference in this case if you use book value weights or market value weights of the bonds?