Question

Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual bond 7 years ago. The bond currently sells for 107.8 percent of its face value. The book value of this debt issue is $149 million. In addition, the company has a second debt issue, a zero coupon bond with 11 years left to maturity; the book value of this issue is $93 million, and it sells for 62.2 percent of par. The company’s tax rate is 24 percent.

**1**. What is the total book value of debt?
**(Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.)**

**2.** What is the total market value of debt?
**(Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, rounded to the nearest
whole number, e.g., 1,234,567.)**

**3.** What is the aftertax cost of the 6.3 percent
coupon bond? **(Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)**

**4.** What is the aftertax cost of the zero coupon
bond? **(Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)**

**5.** What is the aftertax cost of debt?
**(Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g.,
32.16.)**

Answer #1

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a.
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Problem 14-8 Calculating Cost of Debt [LO2]
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