Shanken Corp. issued a 30-year, 5.9 percent semiannual bond three years ago. The bond currently sells for 106 percent of its face value. The book value of the debt issue is $25 million. In addition, the company has a second debt issue on the market, a zero coupon bond with nine years left to maturity; the book value of this issue is $60 million and the bonds sell for 68 percent of par. The company's tax rate is 22 percent. 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? (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.)

Shanken Corp. issued a 30-year, 5.9 percent semiannual bond three years ago. The bond currently sells for 106 percent of its face value. The book value of the debt issue is $25 million. In addition, the company has a second debt issue on the market, a zero coupon bond with nine years left to maturity; the book value of this issue is $60 million and the bonds sell for 68 percent of par. The company's tax rate is 22 percent. 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? (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

See similar textbooks

Similar questions

Magliaro Industries issued a 30-year, 10% semiannual bond 4 years ago. The bond currently sells for 94% of its face value. The company's tax rate is 38%. Suppose 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 14 years left to maturity; the book value of this issue is $50 million and the bonds sell for 54% 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 $ sign in your response.) Total book value What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $740000C What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer rounded to 2 decimal places.) Cost of debt %
Jiminy's Cricket Farm issued a 30-year, 5.2 percent semiannual bond 4 years ago. The bond currently sells for 104 percent of its face value. 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 $50 million, and the bonds sell for 54 percent of par. The company's tax rate is 22 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, eg, 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., 3 2.16)
Charter Corp. has issued 1,554 debentures with a total principal value of $1,554,000. The bonds have a coupon interest rate of 9%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter is in a 39% corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
Sandhill has determined that it could issue $1050 face value bonds with an 8 percent coupon paid semiannually and a 5-year maturity at $954.05 per bond. If Sandhill's marginal tax rate is 36 percent, its after-tax cost of debt is closest to: 6.6 percent. 6.9 percent. 6.2 percent. 6.3 percent.
(Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.2 percent annual interest and matures in 15 years. Investors are willing to pay $946 for the bond and Temple faces a tax rate of 35 percent. What is Temple's after-tax cost of debt on the bond? The after-tax cost of debt is%. (Round to two decimal places.)
Lugget Corp. has one bond issue outstanding with an annual coupon of 3.8%, a face value of $ 1,000 and a price of $1,068.24, which matures in 10 years. The company's tax rate is 33 %. What is Lugget's pre-tax cost of debt?
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 %
Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The company's tax rate is 35%. Suppose 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 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% 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 $ sign in your response.) Total book value $ 8000000 What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $ 6450000 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
The Textile Co. has an annual bond outstanding that matures in 8 years and carries a 7 percent coupon. The bond has a market value of $1,030.44. The company has a corporate tax rate of 35 percent. What is the aftertax cost of debt? 2.28 percent 4.23 percent 5.76 percent 6.50 percent

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS