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Louie the Lumberjack has taken over as manager of the NAU Bookstore. He wants to make the bookstore more profitable by investing in new projects that help to grow the store. In order to consider the projects he needs to determine NAU's cost of capital. He starts by looking at the debt of NAU. Three years ago, NAU sold a 10-year noncallable bond with a semi-annual coupon rate of 6.5% and a par value of $1,000. Today, that bond is trading at a price of 97.5. If NAU's effective tax rate is 25%, what is the cost of debt Louie should use in his WACC calcuation?
