Problem:
Shanken Corp. issued a 30-year, 9 percent semiannual bond 3 years ago. The bond currently sells for 106 percent of its face value. The company%u2019s tax rate is 34 percent. The book value of the debt issue is $24 million. In addition, the company has a second debt issue on the market, a zero coupon bond with three years left to maturity; the book value of this issue is $76 million and the bonds sell for 78 percent of par.
Required:
Question 1: What is the company total book value of debt?
Question 2: Calculate the total market value.
Question 3: What is your best estimate of the aftertax cost of debt?
Note: Provide support for your rationale.