Jiminy\'s Cricket Farm issued a 30-year, 7.6 percent semiannual bond 5 years ago

Question

Jiminy's Cricket Farm issued a 30-year, 7.6 percent semiannual bond 5 years ago. The bond currently sells for 84.5 percent of its face value. The book value of this debt issue is $109 million. In addition, the company has a second debt issue, a zero coupon bond with 8 years left to maturity; the book value of this issue is $68 million, and it sells for 62 percent of par. The company

Jiminy's Cricket Farm issued a 30-year, 7.6 percent semiannual bond 5 years ago. The bond currently sells for 84.5 percent of its face value. The book value of this debt issue is $109 million. In addition, the company has a second debt issue, a zero coupon bond with 8 years left to maturity; the book value of this issue is $68 million, and it sells for 62 percent of par. The company

Explanation / Answer

What is the total book value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

  Total book value of debt = 109000000 + 68000000

  Total book value of debt = $ 177,000,000

What is the total market value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

  Total market value = 109000000*84.5% + 68000000*62%

  Total market value = $ 134,265,000

What is the aftertax cost of the 7.6 percent coupon bond? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Before Tax Cost of Debt = rate(nper,pmt,pv,fv) *2

Nper (indicates the period) = 25*2 = 50

PV (indicates the price) = 109*84.5% = 92.105 Million

PMT (indicate the semi annual payment) = 109*7.6%*1/2 = 4.142 million

FV (indicates the face value) = 109 million

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(50,4.142,-92.105,109) * 2

Before Tax Cost of Debt = 9.1934 %

After Tax Cost of Debt = 9.1934*(1-40%)

After Tax Cost of Debt = 5.52%

What is the aftertax cost of the zero coupon bond? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Before Tax Cost of Debt = rate(nper,pmt,pv,fv)

Nper (indicates the period) = 8

PV (indicates the price) = 68*62%= 42.16 Million

PMT (indicate the semi annual payment) = 0

FV (indicates the face value) = 68 million

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(8,0,-42.16,68)

Before Tax Cost of Debt =6.1576 %

After Tax Cost of Debt = 6.1576*(1-40%)

After Tax Cost of Debt = 3.69%

What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Aftertax cost of debt = 5.52*92.105/(92.105+42.16) + 3.69*42.16/(92.105+42.16)

Aftertax cost of debt = 4.95%

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