Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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**Jiminy's Cricket Farm Debt Analysis**

Jiminy's Cricket Farm issued a 25-year, 10 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $45 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 13 years left to maturity; the book value of this issue is $45 million and the bonds sell for 52 percent of par. The company’s tax rate is 24 percent.

### Questions:

a. What is the company’s total book value of debt?
   **Note:** Do not round intermediate calculations and 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?
   **Note:** Do not round intermediate calculations and 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?
   **Note:** Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

### Calculation Table:

|        |         |
|--------|---------|
| a. Total book value |            |
| b. Total market value |          |
| c. Cost of debt | %          |
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Transcribed Image Text:**Jiminy's Cricket Farm Debt Analysis** Jiminy's Cricket Farm issued a 25-year, 10 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $45 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 13 years left to maturity; the book value of this issue is $45 million and the bonds sell for 52 percent of par. The company’s tax rate is 24 percent. ### Questions: a. What is the company’s total book value of debt? **Note:** Do not round intermediate calculations and 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? **Note:** Do not round intermediate calculations and 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? **Note:** Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. ### Calculation Table: | | | |--------|---------| | a. Total book value | | | b. Total market value | | | c. Cost of debt | % |
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