Prof provided the answer key but REQUIRES showing the solution/analysis using Excel functions/formulas STEP-BY-STEP. 

 

Q17.

Answer Key:

a. YTM = 4.25%

b. R_D = .0331, or 3.31%

c. after tax.

d. BVD = $105,000,000, MVD = $102,300,000, RD = .0302, or 3.02%

Question(s):

Jiminy's Cricket Farm issued a 30-year, 4.5 percent semiannual bond three years ago. The bond currently sells for 104 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt? Why? d. Suppose the book value of the debt issue is $75 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity; the book value of this issue is $30 million, and the bonds sell for 81 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt now?

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Q18.

Answer Key:

a. WACC = .0911, or 9.11%

b. R_D = .0462, or 4.62%

Question(s):

Ninecent Corporation has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Its cost of equity is 11 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 23 percent.

a. What is the company's WACC? b. The company president has approached you about the company's capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president?