Question

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 book value of this issue is $35 million, and the bonds sell for 79 percent of par. |

b. |
What is the company’s total market value of debt?
(Enter your answer in dollars, not millions of dollars,
e.g. 1,234,567.) |

c. |
What is your best estimate of the aftertax cost of debt? |

Answer #1

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...

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 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 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 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 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 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 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, 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...

Shanken Corp. issued a 25-year, 5.5 percent semiannual bond 4
years ago. The bond currently sells for 106 percent of its face
value. 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 14 years left to maturity; the book value of this
issue is $45 million and the bonds sell for 50 percent of par. The
company’s tax rate is 25 percent....

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