Question

Jiminy's Cricket Farm issued a 30-year, 8 percent coupon bond 7 years ago. The bond makes semi-annual coupon payments and sells for 90 percent of its face value. The face value of the debt issue is $24 million and the yield to maturity is 9.036%. Note: YTM for coupon bonds is quoted as an APR with semi-annual compounding.

In addition, the company has a second debt issue on the market, a zero coupon bond with 7 years left to maturity; the face value of this issue is $84 million and the bonds sell for 74 percent of face value. Note: Zero-coupon bonds only make one payment: face value which is paid at maturity.

Required: |

(a) |
What is the company's total book value of debt? (Do not
round your intermediate calculations.) |

(Click to select) 135,360,000 83,760,000 79,800,000 136,200,000 108,000,000 |

(b) |
What is the company's total market value of debt? |

(Click to select) 79,572,000 108,000,000 87,110,400 83,760,000 87,948,000 |

(c) |
What is the pre-tax cost of debt for the zero coupon bond?
Report this as an APR with semi-annual compounding. |

% |

(d) |
The company's tax rate is 32 percent. What is the company's
after-tax cost of debt? Report this as an APR with semi-annual
compounding. |

(Click to select) 4.07% 3.78% 4.27% 3.59% 2.78% |

Answer #1

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...

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...

Jiminy’s Cricket Farm issued a bond with 30 years to maturity
and a semiannual coupon rate of 5 percent 3 years ago. The bond
currently sells for 94 percent of its face value. The company’s tax
rate is 22 percent. The book value of the debt issue is $50
million. In addition, the company has a second debt issue on the
market, a zero coupon bond with 7 years left to maturity; the book
value of this issue is $45...

Jiminy's Cricket Farm issued a 30-year, 6.6 percent semiannual
bond 6 years ago. The bond currently sells for 108.1 percent of its
face value. The book value of this debt issue is $152 million. In
addition, the company has a second debt issue, a zero coupon bond
with 10 years left to maturity; the book value of this issue is $99
million, and it sells for 62.5 percent of par. The company’s tax
rate is 22 percent.
What is the...

Jiminy's Cricket Farm issued a 30-year, 7.2 percent semiannual
bond 6 years ago. The bond currently sells for 87.5 percent of its
face value. The book value of this debt issue is $103 million. In
addition, the company has a second debt issue, a zero coupon bond
with 9 years left to maturity; the book value of this issue is $62
million, and it sells for 59 percent of par. The company’s tax rate
is 38 percent.
What is the...

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...

Jiminy’s Cricket Farm issued a 30-year, 5 percent semiannual
coupon bond 6 years ago. The bond currently sells for 106 percent
of its face value. The company’s tax rate is 25 percent.
a.
What is the company’s pretax cost of debt? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b.
What is the company’s aftertax cost of debt? (Do not
round intermediate calculations and enter your answer as a...

Jiminy’s Cricket Farm issued a bond with 18 years to maturity
and a semiannual coupon rate of 8 percent 3 years ago. The bond
currently sells for 92 percent of its face value. The company’s tax
rate is 40 percent. The book value of the debt issue is $45
million. In addition, the company has a second debt issue on the
market, a zero coupon bond with 12 years left to maturity; the book
value of this issue is $35...

Jiminy’s Cricket Farm
issued a bond with 20 years to maturity and a semiannual coupon
rate of 5 percent 2 years ago. The bond currently sells for 96
percent of its face value. The company’s tax rate is 21 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 8 years left to maturity; the book value of this issue is $30...

Problem 14-8 Calculating Cost of Debt [LO2]
Jiminy’s Cricket Farm issued a bond with 25 years to maturity
and a semiannual coupon rate of 4 percent 5 years ago. The bond
currently sells for 104 percent of its face value. The company’s
tax rate is 24 percent. The book value of the debt issue is $50
million. In addition, the company has a second debt issue on the
market, a zero coupon bond with 7 years left to maturity; the...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 8 minutes ago

asked 10 minutes ago

asked 13 minutes ago

asked 22 minutes ago

asked 29 minutes ago

asked 44 minutes ago

asked 48 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago