Please Help! Bennington Industrial Machines issued 143,000 zero coupon bonds fou
ID: 2770327 • Letter: P
Question
Please Help!
Bennington Industrial Machines issued 143,000 zero coupon bonds four 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.
If the company has a $45.8 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).)
Bennington Industrial Machines issued 143,000 zero coupon bonds four 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.
Explanation / Answer
Value of debt = PVF@8.4%, 26 * Par value
= .12281* 143000
= $ 17562.03
Total value of firm = 17562.03 + 45800000= 45817562.03
Value of debt = 17562.03 / 45817562.03 = .0004