Jiminy's cricket farm issued a 20-year, 10 percent semiannual bond 4 years ago. the bond currently sells for 97 percent of its face value. the company's tax rate is 38 percent. suppose the book value of the debt issue is $40 million. in addition, the company has a second debt issue on the market, a zero coupon bond with 11 years left to maturity; the book value of this issue is $40 million, and the bonds sell for 52 percent of par. what is the company's total book value of debt?

Question

Penelope Smith

Business

10 June, 18:12

Jiminy's cricket farm issued a 20-year, 10 percent semiannual bond 4 years ago. the bond currently sells for 97 percent of its face value. the company's tax rate is 38 percent. suppose the book value of the debt issue is $40 million. in addition, the company has a second debt issue on the market, a zero coupon bond with 11 years left to maturity; the book value of this issue is $40 million, and the bonds sell for 52 percent of par. what is the company's total book value of debt?

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Answers (1)

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Richmond · Answer 1

The correct answer is $80 million.

Explanation:

According to the scenario, the computation of the given data are as follows:

First debt, Book value = $40 million

Second debt, Book value = $40 million

So, we can calculate the company's total book value by using following formula:

Total book value = First debt, Book value + Second debt, Book value

= $40 million + $40 million

= $80 million