Jiminy’s Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 4 percent 3 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 22 percent. The book value of the debt issue is $30 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 $15 million, and the bonds sell for 73 percent of par.
A. What is the company’s total book value of debt?
B. What is the company’s total market value of debt?
C. What is your best estimate of the aftertax cost of debt?

Question

contestada

Respuesta :

ogbe2k3 ogbe2k3 · Answer 1 · 2020-05-15T03:43:22+02:00

Answer:

(a)$ 45million (b) $ 43, 350,000 (c) 2.65%

Explanation:

Solution

(a) Given that:

The Debt = Book value = $ $30 million

The zero coupon bonds = $15 million

Total = $30 million + $15 million

= $45 million

(b) The market value is = 32,400,000

the zero coupon bonds = 10,950,000

= 32,400,000 + 10,950,000 = $43,350,000

Note: Kindly find an attached work of the part of solution to the given question below.

Answer Link