Adequate information: Book value of debt issue BV D = $25,000,000 Book value of zero-coupon bond issue BV Z = $60,000,000 Market value over book value for debt issue (A) = 68% Market value over book value for zero-coupon bond issue (B) = 106% Face value = $1,000 Price = $680 Term duration = 9 years Number of compounding periods in a year = 2 Tax rate = 22% To compute: Total book value of debt, the total market value of debt, and after-tax cost of debt. Introduction: Cost of debt refers to the interest payments made by the borrower on the debt such as bonds.

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Chapter 13, Problem 4QAP

Summary Introduction

Adequate information:

Book value of debt issue BVD = $25,000,000

Book value of zero-coupon bond issue BVZ = $60,000,000

Market value over book value for debt issue (A) = 68%

Market value over book value for zero-coupon bond issue (B) = 106%

Face value = $1,000

Price = $680

Term duration = 9 years

Number of compounding periods in a year = 2

Tax rate = 22%

To compute: Total book value of debt, the total market value of debt, and after-tax cost of debt.

Introduction: Cost of debt refers to the interest payments made by the borrower on the debt such as bonds.

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