Answered: An Institute issued a 30 year, 8%…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 16P

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An Institute issued a 30 year, 8% semi-annual bond 3 years ago. The bond currently sells for 93% of its face value. The Company’s tax rate is 35%. Find the pre-taxed cost of debt and the after tax cost of debt.

Suppose the book value of the debt issues is $60 million. In addition, the
company has a second debt issue on the market, a zero coupon bond with 10 years to mature. Thebook value of this issue is $35 million and the bond sell for 57 percent of par.
What is the company’s total book value of debt, The total market value and what is your best estimate of the after-tax cost of debt now?

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