3.00 points P14-8 Calculating Cost of Debt [LO2] Jiminy\'s Cricket Farm issued a

Question

3.00 points P14-8 Calculating Cost of Debt [LO2] Jiminy's Cricket Farm issued a 30-year 6 percent semi-annual bond 5 years ago The bond currently sells for 80 percent of its face value The book value of the debt issue is $22 million. The company's tax rate is 32 percent In addition, the company has a second debt issue on the market, a zero coupon bond with 5 maturity, the book value of this issue is $84 million and the bonds sell for 79 percent of par years left to Required (a) What is the company's total book value of debl? (Do not round your intermediate calculations.) (Click to select) (b) What is the company's total market value of debt? (Do not round your intermediate calculations.) (Click to select) (c) What is your best estimate of the aftertax cost of debt? (Do not round your intermediate calculations (Click to select) v O Type here to search

Explanation / Answer

a) Company's Total Book Value of Debt is:

b) Total Market Value of Debt:

c) After Tax Cost of Debt=Interest rate of debt*(100-tax rate)

=6%*(100-32)

=4.08%

Particulars Amount 30year,6% semi annual bond $22 million Zero Coupon Bond $84 million Total Book Value of Debt $106 million

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