Problem:
Jiminy's Cricket Farm issued a 30-year, 7.2 percent semiannual bond 9 years ago. The bond currently sells for 85.5 percent of its face value. The book value of this debt issue is $107 million. In addition, the company has a second debt issue, a zero coupon bond with 12 years left to maturity; the book value of this issue is $66 million, and it sells for 61 percent of par. The company's tax rate is 30 percent.
Required:
Question 1: What is the after-tax cost of the 7.2 percent coupon bond?
Question 2: What is the after-tax cost of the zero coupon bond?
Question 3: What is the after-tax cost of debt?
Note: Explain the solution in detail.