Question
Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 7 years ago. The bond makes semi-annual coupon payments and sells for 90 percent of
Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 7 years ago. The bond makes semi-annual coupon payments and sells for 90 percent of its face value. The face value of the debt issue is $24 million and the yield to maturity is 9.036%. 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 7 years left to maturity; the face value of this issue is $84 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) 135,360,000 83,760,000 79,800,000 136,200,000 108,000,000 |
(b) | What is the company's total market value of debt? (Do not round your intermediate calculations.) |
(Click to select) 79,572,000 108,000,000 87,110,400 83,760,000 87,948,000 |
(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 32 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) 4.07% 3.78% 4.27% 3.59% 2.78% |
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