3. 8.

Calculating cost of debt [LO 14.2] For the firm in Problem 7, suppose the book value of the debt issue is $95 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity; the book value of this issue is $40 million, and the bonds sell for 67 per cent of face value. What is the company’s total book value of debt? The total market value? What is your best estimate of the after-tax cost of debt now?