Jiminy's Cricket Farm issued a 30-year, 5.6 percent semiannual bond 2 years ago. The bond currently sells for 107 percent of its face value. The book value of the debt issue is $55 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 15 years left to maturity; the book value of this issue is $50 million, and the bonds sell for 51 percent of par. The company’s tax rate is 21 percent. a. 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.).
Jiminy's Cricket Farm issued a 30-year, 5.6 percent semiannual bond 2 years ago. The bond currently sells for 107 percent of its face value. The book value of the debt issue is $55 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 15 years left to maturity; the book value of this issue is $50 million, and the bonds sell for 51 percent of par. The company’s tax rate is 21 percent. a. 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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Jiminy's Cricket Farm issued a 30-year, 5.6 percent semiannual bond 2 years ago. The bond currently sells for 107 percent of its face value. The book value of the debt issue is $55 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 15 years left to maturity; the book value of this issue is $50 million, and the bonds sell for 51 percent of par. The company’s tax rate is 21 percent.
a. 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.).
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