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 91 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 91 percent of its face value. The face value of the debt issue is $21 million and the yield to maturity is 8.925%. 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 $76 million and the bonds sell for 73 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) 74,590,000 97,000,000 121,040,000 72,200,000 121,800,000 |
| (b) | What is the company's total market value of debt? (Do not round your intermediate calculations.) |
| (Click to select) 70,860,500 77,573,600 74,590,000 78,319,500 97,000,000 |
| (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 34 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) 2.83% 4.03% 4.23% 3.55% 3.74% |
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Linear Algebra And Its Applications
Authors: David Lay, Steven Lay, Judi McDonald
6th Global Edition
9781292351216
