7. Calculating Cost of Debt [LO2] Jiminy's Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells for 93 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt? Why?

9.27 Debt Valuation: Zero-Coupon Debentures.  At the beginning of the year, Park Inc. issued $150 million (maturity value) of 10-year, zero-coupon debentures, at a time when the yield rate was four percent annually. The Park, Inc. bonds would be subject to semiannual compounding. Required1. Calculate the proceeds to be received by Park Inc. when the bonds are sold. 2. Calculate the cost to repurchase and retire the bonds after five years assuming that the market yield rate at that time is five percent annually. Is the early retirement of debt a good decision in this set of circumstances? What factors did you consider in reaching your decision? 3. Under what circumstances would a company consider issuing zero-coupon debentures instead of regular interest-bearing debentures?

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Ins 8. Suppose that today's interest rate on 1-year bonds is 4% (i10 year bonds next year, in two years, and in three years are expected to be 5%, 6%, and 7%, respectively. 0.04). Interest rates on 1- ha a. According to the Expectations Theory of Term Structure, what are the equilibrium interest rates today for otherwise comparable 2-year, 3-year, and 4-year bonds? b. Draw the yield curve for that case. or

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5 2 Chamberlain Company wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 9.8 percent coupon bonds on the market that sell for $865.21, make semiannual payments, and mature in 18 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Assume a par value of $1,000.

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4. Problem 10.01 (After-Tax Cost of Debt) eBook The Holmes Company's currently outstanding bonds have an 8% coupon and a 10% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes' after-tax cost of debt? Round your answer to two decimal places. %

QUESTION 23 Your firm is in the 34 percent tax bracket. The yield to maturity on your existing bonds is 8 percent. The state of Georgia offers to loan your firm $1,000,000 with a two year amortizing loan at a 5 percent rate of interest and annual payments due at the end of the year. The interest will be deductible at the time that you pay. What is the APV of this below-market loan to your firm? I did not round any of my intermediate steps. You might be a little bit off. Pick the answer closest to yours. $64,157.38 $417,201.05 $840,797 none of the options