Question

XYZ has the following debt due schedule Time due Amount due Interest rate 1 year 10000...

XYZ has the following debt due schedule

Time due Amount due Interest rate

1 year 10000 3%

3 year 25000 5%

6 years 31000 7%

a) calculate the weighted average maturity (time due) of XYZ's debt

b) calculate the weighted average interest rate of XYZ's debt

c) if the total (book) debt on the balance sheet of XYZ is 56000, and the current interest expense is 3500. what is the estimated market value of debt?

Select one:

a. Weighted average maturity = 4.11 years
Weighed average interest rate = 5.64%
Estimated market value of debt = $57,229.11

b. Weighted average maturity = 3.11 years
Weighed average interest rate = 2.64%
Estimated market value of debt = $45,229.11

c. Weighted average maturity = 8.11 years
Weighed average interest rate = 7.68%
Estimated market value of debt = $32,229.11

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Homework Answers

Answer #1

a. Weighted Average Maturity =

= 4.11 years.

b. Weighted average interest =

= 5.455%

c. The current market value of debt is calculated by using the following formula

C--Interest Expense

Kd is current cost of debt

t is weighted average maturity

D is the total debt

Putting values as kd= 5.455%, C=3500, t =4.11 years, D= 56000

We get = 57,229

Hence option A is correct one

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