Bennington Industrial Machines issued 155,000 zero coupon bonds four years ago.

Question

Bennington Industrial Machines issued 155,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 6.7 percent. Required: If the company has a $55 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).) 34.30 C

Explanation / Answer

number of years left = 26

price per bond = 1000/1.06726 = 185.2359

total value of bond = 185.2359 * 155,000 = 28,711,560.21

weight of debt = 28,711,560.21/(55,000,000 + 28,711,560.21) = 0.3430

(you have mentioned it as a percentage) use 0.3430

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

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