Jiminy's Cricket Farm issued a 20-year, 4 percent semiannual coupon bond 6 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 percent. The book value of the debt issue is $50 million. In addition, the company has a second debt issue, a zero coupon bond with 7 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 74 percent of par. a. What is the company's total book value of debt? (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? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.) c. What is 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.)
Jiminy's Cricket Farm issued a 20-year, 4 percent semiannual coupon bond 6 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 percent. The book value of the debt issue is $50 million. In addition, the company has a second debt issue, a zero coupon bond with 7 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 74 percent of par. a. What is the company's total book value of debt? (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? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.) c. What is 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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Transcribed Image Text:Jiminy's Cricket Farm issued a 20-year, 4 percent semiannual coupon bond 6 years ago.
The bond currently sells for 95 percent of its face value. The company's tax rate is 25
percent. The book value of the debt issue is $50 million. In addition, the company has a
second debt issue, a zero coupon bond with 7 years left to maturity; the book value of
this issue is $35 million, and the bonds sell for 74 percent of par.
a. What is the company's total book value of debt? (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? (Enter your answer in dollars, not
millions of dollars, e.g. 1,234,567.)
c. What is 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.
Total book value
b. Total market value
C. Cost of debt
85,000,000
73,400,000
%
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