Jiminys Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 7 percent 4 years ago. The bond currently sells for 104 percent of its face value. The companys tax rate is 23 percent. The book value of the debt issue is $55 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $30 million, and the bonds sell for 58 percent of par.

What is the company's total book value of debt? $95,000,000 $99,750,000 $90,250,000 $85,500,000

What is the company's total market value of debt? $83,150,000 $85,500,000 $87,307,500 $91,465,000

What is your best estimate of the aftertax cost of debt? 4.88% 5.52% 4.25% 5.13% 5.37%

Cully Company needs to raise $26 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock, 11 percent preferred stock, and 19 percent debt. Flotation costs for issuing new common stock are 12 percent, for new preferred stock, 7 percent, and for new debt, 5 percent. What is the true initial cost figure Southern should use when evaluating its project?

Multiple Choice $28,927,459 $28,631,200 $23,920,000 $30,084,557