Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 5 percent 3 years ago. The bond currently sells for 92 percent of its face value. The company’s tax rate is 22 percent. The book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 8 years left to maturity; the book value of this issue is $20 million, and the bonds sell for 65 percent of par. a. What is the company’s total book value of debt? (Enter your 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?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
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Jiminy’s Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 5 percent 3 years ago. The bond currently sells for 92 percent of its face value. The company’s tax rate is 22 percent. The book value of the debt issue is $35 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 8 years left to maturity; the book value of this issue is $20 million, and the bonds sell for 65 percent of par. |
| a. |
What is the company’s total book value of debt? (Enter your 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 your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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