Bennington Industrial Machines issued 153,000 zero coupon bonds six years ago. T

Question

Bennington Industrial Machines issued 153,000 zero coupon bonds six years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.3 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.4 percent. Required: What is the price of the bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Bond price $ What is the market value of the company's debt? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).) Market value $ If the company has a $46.8 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate calculations. Round your answer to 4 decimal places (e.g., 32.1616).) Weight of debt

Explanation / Answer

Using financial calculator we can determone price of the bond

N=24, I/Y= 8.4, PMT=0, FV=153000,

Calculate for PV

PV= $22079.47

Assume par value of bond $1000

Then Market Value of bond= 22079.47*1000

Market Value of debt= $22079470.69 =22.07 Million

Total Capital= Debt+Equity

=22.07+46.8

Total Capital=68.87

Weight of debt= 22.07/68.87

Weight of debt=32.04%

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.