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Please explain how to calculate aftertax cost of debt with info provided. Answer should be a percentage. TIA!!! Jiminy's Cricket Farm issued a bond with
Please explain how to calculate aftertax cost of debt with info provided. Answer should be a percentage. TIA!!!
Jiminy's Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate of 7 percent 5 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 24 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 9 years left to maturity; the book value of this issue is $40 million, and the bonds sell for 64 percent of par. What is the company's total book value of debt? Book value of debt is computed as follows: =Bookvalueofdebt+Bookvalueofzerocouponbond=$55,000,000+$40,000,000=$95,000,000 Total market value of debt is computed as follows: =Bookvalueofdebt95%+Bookvalueofzerocouponbond64%=$55,000,00095%+$40,000,00064%=$52,250,000+$25,600,000=$77,850,000Step by Step Solution
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