Question

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

 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 million, and the bonds sell for 64 percent of par.

just need the "Cost of debt" percentage

 c. What is your best estimate of 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.)

Market Value of Debt =95%*55+64%*40 =77.85

YTM of first bond is calculated as follows

Let's assume par value of single bond = 1000
Coupon= 7%*1000/2 = 35
Price = 95%*1000 = 950
Number of Periods = 25*2 = 50
YTM using excel formula =2*RATE(50,350,-950,1000) = 7.4435%

Price of second bond = 64%*1000 = 640
Number of periods = 14
YTM of second bond = (1000/640)^(1/9)-1 = 5.0837%

Cost of debt = Cost of Debt * Weight of market value of debt + Cost of zero coupon debt* Weight of market value of zero coupon = 7.4435%*95%*55/77.85+5.0837%*64%*40/77.85= 6.6675%

After tax cost of Debt = 6.6675%*(1-Tax rate) = 6.6675%*(1-24%) = 5.07%

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