Problem:
Jiminy's Cricket Farm issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company's tax rate is 35 percent.
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 13 years left to maturity; the book value of this issue is $50 million, and the bonds sell for 54 percent of par.
Required:
Question 1: What is the company's total book value of debt?
Question 2: What is the company's total market value of debt?
Question 3: What is your best estimate of the aftertax cost of debt?
Note: Please provide reasons to support your answer.