a. What is the company's total book value of debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. What is the company's total market value of debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) c. What is your best estimate of the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. What is the company's total book value of debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. What is the company's total market value of debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) c. What is your best estimate of the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Jiminy's Cricket Farm issued a 20-year, 4.6 percent semiannual bond 4 years ago.
The bond currently sells for 93 percent of its face value. The book value of the debt
issue is $50 million. In addition, the company has a second debt issue on the
market, a zero coupon bond with 11 years left to maturity; the book value of this
issue is $40 million, and the bonds sell for 51 percent of par. The company's tax rate
is 21 percent.
a. What is the company's total book value of debt? (Do not round intermediate
calculations and enter your answer in dollars, not millions of dollars, e.g.,
1,234,567.)
b. What is the company's total market value of debt? (Do not round intermediate
calculations and enter your answer in dollars, not millions of dollars, e.g.,
1,234,567.)
c. What is your best estimate of the aftertax cost of debt? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
a. Total book value
b. Total market value.
c. Cost of debt
$
$
90,000,000
66,900,000
7.55
%
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