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Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 4 years ago. The bond makes semi-annual coupon payments and sells for 87 percent of
Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 4 years ago. The bond makes semi-annual coupon payments and sells for 87 percent of its face value. The face value of the debt issue is $24 million and the yield to maturity is 9.335%. Note: YTM for coupon bonds is quoted as an APR with semi-annual conpounding. 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 $84 million and the bonds sell for 75 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? (b) What is the company's total market value of debt? (c) What is the pre-tax cost of debt for the zero coupon bond? Report this as an APR with semi-annual compounding. (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.
Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 4 years ago. The bond makes semi-annual coupon payments and sells for 87 percent of its face value. The face value of the debt issue is $24 million and the yield to maturity is 9.335%. Note: YTM for coupon bonds is quoted as an APR with semi-annual conpounding.
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 $84 million and the bonds sell for 75 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?
(b) What is the company's total market value of debt?
(c) What is the pre-tax cost of debt for the zero coupon bond? Report this as an APR with semi-annual compounding.
(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.
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