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

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a.
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b.
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