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 10 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 57 percent of par.
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 10 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 57 percent of par.
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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Question
I:35)
![S14-08 Calculating Cost of Debt [LO2]
Jiminy's Cricket Farm issued a 30-year, 8
percent semiannual bond 3 years ago. The
bond currently sells for 93 percent of its face
value. The company's tax rate is 35 percent.
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 10 years left to maturity;
the book value of this issue is $35 million, and
the bonds sell for 57 percent of par.
What is the company's total book value of
debt? (Enter your answer in dollars, not
millions of dollars, i.e. 1,234,567.)
Total book value
What is the company's total market value of
debt? (Enter your answer in dollars, not
millions of dollars, i.e. 1,234,567.)
Total market value
What is your best estimate of the aftertax
cost of debt? (Round your answer to 2
decimal places. (e.g., 32.16))
Cost of debt
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F65ce15fa-cdf5-41db-9ef7-4ad826ac3586%2F18235e53-cff9-4656-9b7e-5637aca2375c%2F1wf9txp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:S14-08 Calculating Cost of Debt [LO2]
Jiminy's Cricket Farm issued a 30-year, 8
percent semiannual bond 3 years ago. The
bond currently sells for 93 percent of its face
value. The company's tax rate is 35 percent.
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 10 years left to maturity;
the book value of this issue is $35 million, and
the bonds sell for 57 percent of par.
What is the company's total book value of
debt? (Enter your answer in dollars, not
millions of dollars, i.e. 1,234,567.)
Total book value
What is the company's total market value of
debt? (Enter your answer in dollars, not
millions of dollars, i.e. 1,234,567.)
Total market value
What is your best estimate of the aftertax
cost of debt? (Round your answer to 2
decimal places. (e.g., 32.16))
Cost of debt
%
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