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iminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate...

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Finance

iminy’s Cricket Farm issued a bond with 15 years to maturity anda semiannual coupon rate of 4 percent 2 years ago. The bondcurrently sells for 91 percent of its face value. The company’s taxrate is 21 percent. The book value of the debt issue is $30million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 7 years left to maturity; the bookvalue of this issue is $20 million, and the bonds sell for 73percent of par.

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 your best estimate of the aftertax cost of debt?

Answer & Explanation Solved by verified expert
4.3 Ratings (866 Votes)
A Total firm book value BV bond 1 BV bond 2 3020 50m B MV of Bond1Par valuebonds outstandingage of par MV of Bond1100030000091 27300000 MV of Bond2Par    See Answer
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Transcribed Image Text

iminy’s Cricket Farm issued a bond with 15 years to maturity anda semiannual coupon rate of 4 percent 2 years ago. The bondcurrently sells for 91 percent of its face value. The company’s taxrate is 21 percent. The book value of the debt issue is $30million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 7 years left to maturity; the bookvalue of this issue is $20 million, and the bonds sell for 73percent of par.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 your best estimate of the aftertax cost of debt?

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