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Jiminy's Cricket Farm issued a 30-year, 6
Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual bond eight years ago. The bond currently sells for 110 percent of its face value. The book value of the debt issue is $135 million. In addition, the company has a second debt issue, a zero coupon bond with 12 years left to maturity; the book value of this issue is $65 million, and it sells for 64.3 percent of par. The company's tax rate is 22 percent.
a) 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.)
b) 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.)
c) What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expert Solution
a) Total book value of debt = $200,000,000
b) Total market value of debt = $190,295,000
c) After tax cost of debt = 3.99%
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