Question

Calculating Bond Value

Shanken Corp. issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 114 percent of its face value. The company’s tax rate is 32percent. The book value of the debt issue is $22 million. In addition, the company has a second debt issue on the market, a zero coupon bond with three years leftto maturity; the book value of this issue is $80 million and the bonds sell for 78 percent of par.What is the total market value? What is your best estimate of theaftertax cost of debt?

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