Question
Jiminy's Cricket Farm issued a 30-year, 6 percent coupon bond 4 years ago. The bond makes semi-annual coupon payments and sells for 86 percent of
Jiminy's Cricket Farm issued a 30-year, 6 percent coupon bond 4 years ago. The bond makes semi-annual coupon payments and sells for 86 percent of its face value. The face value of the debt issue is $22 million and the yield to maturity is 7.194%. Note: YTM for coupon bonds is quoted as an APR with semi-annual compounding. |
In addition, the company has a second debt issue on the market, a zero coupon bond with 4 years left to maturity; the face value of this issue is $79 million and the bonds sell for 74 percent of face value. Note: Zero-coupon bonds only make one payment: face value which is paid at maturity. |
Required: |
(a) | What is the company's total book value of debt? (Do not round your intermediate calculations.) |
(Click to select) 77,380,000 75,050,000 126,160,000 101,000,000 126,950,000 |
(b) | What is the company's total market value of debt? (Do not round your intermediate calculations.) |
(Click to select) 77,380,000 81,249,000 73,511,000 80,475,200 101,000,000 |
(c) | What is the pre-tax cost of debt for the zero coupon bond? Report this as an APR with semi-annual compounding. (Enter your answer as a percent, rounding to three decimals.) |
% |
(d) | The company's tax rate is 33 percent. What is the company's after-tax cost of debt? Report this as an APR with semi-annual compounding. (Do not round your intermediate calculations.) |
(Click to select) 3.78% 5.47% 5.06% 4.81% 5.74% |
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