Pearce's Cricket Farm issued a 15-year, 10% semiannual bond 4 years ago. The Bohd 2uneny company's tax rate is 38% Suppose the book value of the debt issue is $60 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 $35 million and the bonds sel for 5% of par. Assume the par value of the bond is $1.000 What is the company's total book value of debt? (Enter the answer in dollars. Omit S sign in your response.) Total book value What is the company's total market value of debr? (Enter the answer in dollars. Omit S sign in your response.) Total market value What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Cost of debt
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Step by step
Solved in 4 steps
