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1) ICU Window, Inc., is trying to find out its cost of debt. Firm has debt issue outstanding with 7 years to maturity which is quoted at 108% of face value. The issue makes semi-annual payments and has the embedded cost of 6.1%annually. Requirement

i) What is ICU’s pre-tax cost of debt?

ii) If the tax rate is 38%, what is the after tax cost of debt?

2) Jiminy's Cricket Farm issued a 30-year, 6.5% semi-annual bond seven years ago. Bond presently sells for 107% of its face value. Book value of this debt issue is= $105 million. Additionally, company has second debt issue, zero coupon bond with 10 years left to maturity; book value of this issue is $75 million, and it sells for 62.5% of par. Company’s tax rate is 35%.

i) Determine the total book value of debt?

ii) What is the total market value of debt?

iii) Determine the after tax cost of debt?

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