Ace Industrial Machines issued 115,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.1 percent. The bonds have a par value of $2,000. If the company has a $76.2 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) |
par value = 2000
Years to maturity= 30-7= 23
Yield to Maturity = 5.1% or 0.051
Price of Zero coupon bond formula = Face Value /(1+ interest or
yield rate)^years to maturity
2000/(1+0.051)^23
637.0412091
So, price of 115000 Zero coupon bond is 115000*637.0412091
=$ 73259739.05
Value of Equity= 76200000
Weight of debt = Debt/(Debt + Equity)
73259739.05 /(73259739.05+76200000)
0.4901637024
So, weight of debt used for cost of capital is
0.4902
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Ace Industrial Machines issued 115,000 zero coupon bonds 7 years ago. The bonds originally had 30...
Ace Industrial Machines issued 115,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.1 percent. The bonds have a par value of $2,000. If the company has a $76.2 million market value of equity, what weight should it use for debt when calculating the cost of capital?
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Ace Industrial Machines issued 125,000 zero coupon bonds 9 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.1 percent. The bonds have a par value of $2,000. If the company has a $77.8 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate...
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Ace Industrial Machines issued 120.000 zero coupon bonds 8 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.1 percent. The bonds have a par value of $2,000. If the company has a $77 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate...
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