Ace Industrial Machines issued 190,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.7 percent. The bonds have a par value of $2,000. If the company has a $88.2 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.)
K = N |
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |
k=1 |
K =23 |
Bond Price =∑ [(0*2000/100)/(1 + 5.7/100)^k] + 2000/(1 + 5.7/100)^23 |
k=1 |
Bond Price = 558.86 |
MV of bond = price*bonds = 558.86*190000
=
106183400 |
Total Capital value = Value of Debt + Value of Equity |
=106183400+88200000 |
=194383400 |
Weight of Debt = Value of Debt/Total Capital Value |
= 106183400/194383400 |
=0.5463 |
Ace Industrial Machines issued 190,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with...
Ace Industrial Machines issued 190,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.7 percent. The bonds have a par value of $2,000. If the company has a $88.2 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate...
Ace Industrial Machines issued 190,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.7 percent. The bonds have a par value of $2,000. If the company has a $88.2 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 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 175,000 zero coupon bonds 8 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.4 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.5 percent. The bonds have a par value of $2,000. If the company has a $85.8 million market value of equity, what weight should it use for debt when calculating the cost of capital? (Do not round intermediate...