Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The company's tax rate is 35%. Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% of par. Assume the par value of the bond is $1,000. What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total book value $8000000 What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $ 6450000 What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Cost of debt %
Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The company's tax rate is 35%. Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% of par. Assume the par value of the bond is $1,000. What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total book value $8000000 What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.) Total market value $ 6450000 What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Cost of debt %
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
Related questions
Question
![Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The
company's tax rate is 35%.
Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero
coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% of par. Assume the par
value of the bond is $1,000.
What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.)
Total book value
$ 8000000
What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.)
Total market value
$ 6450000
What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage
rounded to 2 decimal places.)
Cost of debt](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5e314bf8-1447-4537-a9a0-d57579475217%2Ffd6665e6-bae6-4dd2-8e5b-6cdc8f4d393e%2Fdxut2be_processed.png&w=3840&q=75)
Transcribed Image Text:Pearce's Cricket Farm issued a 10-year, 8% semiannual bond 3 years ago. The bond currently sells for 96% of its face value. The
company's tax rate is 35%.
Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero
coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55% of par. Assume the par
value of the bond is $1,000.
What is the company's total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.)
Total book value
$ 8000000
What is the company's total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.)
Total market value
$ 6450000
What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage
rounded to 2 decimal places.)
Cost of debt
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