Question

Jiminy’s Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate of 4 percent 2 years ago. The bond currently sells for 107 percent of its face value. The company’s tax rate is 21 percent. The book value of the debt issue is $60 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 $35 million, and the bonds sell for 76 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?

• 2.65%

• 2.76%

• 2.18%

• 2.78%

• 2.92%

Answer 1