Question

Ace Industrial Machines issued 170,000 zero coupon bonds 7 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 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.) & Answer is complete but not entirely correct. Weight of debt 0.5386

Answer 1

C18 X ✓ for =B18/$B$24 Market value 97,614,585 =170000*PV(5.5%/2,23*2,0,2000)*-1 Weights 0.5345 A 17 18 Debt 19 20 21 Equity 22 23 24 Total market value 25 85,000,000 0.4655 182,614,585 1.0000 26 Weight used for debt 0.5345

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