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1. ICU Window, Inc., is trying to determine its c...




1. ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.1 percent annually. Requirement 1: What is ICU?s pretax cost of debt? Requirement 2: If the tax rate is 38 percent, what is the aftertax cost of debt? 2.Jiminy's Cricket Farm issued a 30-year, 6.5 percent semiannual bond 7 years ago. The bond currently sells for 107 percent of its face value. The book value of this debt issue is $105 million. In addition, the company has a second debt issue, a zero coupon bond with 10 years left to maturity; the book value of this issue is $75 million, and it sells for 62.5 percent of par. The company?s tax rate is 35 percent. Requirement 1: What is the total book value of debt? Requirement 2: What is the total market value of debt? Requirement 3: What is the aftertax cost of debt?


Paper#5384 | Written in 18-Jul-2015

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