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Jiminy’s Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate...

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Finance

Jiminy’s Cricket Farm issued a bond with 30 years to maturityand a semiannual coupon rate of 7 percent 5 years ago. The bondcurrently sells for 95 percent of its face value. The company’s taxrate is 24 percent. The book value of the debt issue is $55million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 9 years left to maturity; the bookvalue of this issue is $40 million, and the bonds sell for 64percent 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
4.4 Ratings (916 Votes)
a BV of company debt BV of debt 1 BV of debt 2 5540 95m B MV of Bond1Par valuebonds outstandingage of par MV of Bond1100055000095 52250000 MV of Bond2Par    See Answer
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Jiminy’s Cricket Farm issued a bond with 30 years to maturityand a semiannual coupon rate of 7 percent 5 years ago. The bondcurrently sells for 95 percent of its face value. The company’s taxrate is 24 percent. The book value of the debt issue is $55million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 9 years left to maturity; the bookvalue of this issue is $40 million, and the bonds sell for 64percent 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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