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Peyton's Colt Farm issued a 30-year, 7.6 percent semiannual bond 8 years ago. The bond currently sells for 88.5 percent of its face value. The company's tax rate is 34 percent. The book value of the debt issue is $101 million. In addition, the company has a second debt issue, a zero coupon bond with 11 years left to maturity; the book value of this issue is $60 million, and it sells for 58.0 percent of par.
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?
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If the first constraint is altered to X + 3Y
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Ramon Inc. reported net income of $300,000 for the year ended December 31, 2006. Ramon Inc. had 50,000 shares of common stock outstanding throughout 2006. On January 1, 2006, Ramon Inc. issued 500, five-year, $1,000 face value bonds at par.
The stock of Robotic Atlanta Corporation is trading at $40 each share. In the past, the firm has paid a constant dividend of $5 each share and it has just paid an yearly dividend.
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