Bennington Industrial Machines issued 141,000 zero coupon bonds six years ago. T

Question

Bennington Industrial Machines issued 141,000 zero coupon bonds six years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.1 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.2 percent.

If the company has a $45.6 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).)

Weight of debt:

Bennington Industrial Machines issued 141,000 zero coupon bonds six years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.1 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.2 percent.

If the company has a $45.6 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).)

Weight of debt:

Explanation / Answer

Face value (FV) $                                   1,000.00 Coupon rate 0.00% Number of compounding periods per year 2 Interest per period (PMT) $                                                -   Number of years to maturity 24 Number of compounding periods till maturity (NPER) 48 Market rate of return/Required rate of return 8.20% Market rate of return/Required rate of return per period (RATE) 4.10% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $                                       145.33 Market value Weights Common stock $                                      45,600,000 0.6899 Debt $                                      20,491,988 0.3101 Total $                                      66,091,988 1.0000

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