Shanken Corp. issued a bond with a maturity of 10 years and a semiannual coupon

Question

Shanken Corp. issued a bond with a maturity of 10 years and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 94 percent of its face value. 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 14 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55 percent of par. The company’s tax rate is 38 percent. What is the company’s total book value of debt?

Explanation / Answer

Book value of debt=55,000,000+30,000,000=85,000,000

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