Problem 14-8 Calculating Cost of Debt [LO2] Jiminy’s Cricket Farm issued a bond with 30 years...

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Problem 14-8 Calculating Cost of Debt [LO2]
Jiminy’s Cricket Farm issued a bond with 30 years to maturityand a semiannual coupon rate of 5 percent 3 years ago. The bondcurrently sells for 94 percent of its face value. The company’s taxrate is 22 percent. The book value of the debt issue is $65million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 7 years left to maturity; the bookvalue of this issue is $45 million, and the bonds sell for 74percent of par.
a.
What is the company’s total book value of debt? (Enteryour answer in dollars, not millions of dollars, e.g.1,234,567.)
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?(Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g.,32.16.)
a) total book value?
b) total market value?
c) cost of debt?
please help

Answer & Explanation Solved by verified expert

3.9 Ratings (380 Votes)

a Book Value firm of debt BV bond 1BV bond 26500000045000000110000000 b MV of Bond 1Par valuebonds outstandingage of par MV of Bond 1100065000094 61100000 MV See Answer

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Problem 14-8 Calculating Cost of Debt [LO2]Jiminy’s Cricket Farm issued a bond with 30 years to maturityand a semiannual coupon rate of 5 percent 3 years ago. The bondcurrently sells for 94 percent of its face value. The company’s taxrate is 22 percent. The book value of the debt issue is $65million. In addition, the company has a second debt issue on themarket, a zero coupon bond with 7 years left to maturity; the bookvalue of this issue is $45 million, and the bonds sell for 74percent of par.a.What is the company’s total book value of debt? (Enteryour answer in dollars, not millions of dollars, e.g.1,234,567.)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?(Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g.,32.16.)a) total book value?b) total market value?c) cost of debt?please help

a.	What is the company’s total book value of debt? (Enteryour answer in dollars, not millions of dollars, e.g.1,234,567.)
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?(Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g.,32.16.)