Safari File Edit View History Bookmarks Window Help 79% T, Mon Nov 27 1:16 PM E

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Safari File Edit View History Bookmarks Window Help 79% T, Mon Nov 27 1:16 PM E ezto.mheducation.com Chapter 12 EOCP instructions I help Question 6 (of 8) Save & Exit Submit 6. 1.00 points Liu Industrial Machines issued 139,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.9 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.5 percent. If the company has a $45.4 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Weight of debt eBook &Resources; Worksheet Learning Objective: 12-03 Determine a firms overall cost of capital. Section: 12.4 The Weighted Average Cost of Capital Difficulty: 1 Basic

Explanation / Answer

N = 52..............assuming semi annual compunding

The price of 1 bond = 1000/1.042552 = 114.8272

MV of debt = 114.8272*139,000 = 15,960.977.69

weight of detb = 15,960.977.69/(15,960.977.69 + 45,400,000) = 0.2601

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