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Liu Industrial Machines issued 142,000 zero coupon bonds seven years ago. The bonds originally had 30...

Liu Industrial Machines issued 142,000 zero coupon bonds seven years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.2 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.3 percent.

If the company has a $45.7 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., 32.1616.)
  
Weight of debt IT IS NOT .3318 OR .3317 OR 33.18 OR 33.17. I have no clue why not but when I checked my answer it was marked as incorrect. I'm really confused on this.

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Answer #1

Number of bonds issued = 142,000
Face Value = $1,000
Time to Maturity = 23 years
Semiannual Period to Maturity = 46
Annul Yield to Maturity = 8.30%
Semiannual Yield to Maturity = 4.15%

Current Price per bond = $1,000 * PVIF(4.15%, 46)
Current Price per bond = $1,000 / 1.0415^46
Current Price per bond = $154.05

Market Value of Debt = Current Price per bond * Number of bonds issued
Market Value of Debt = $154.05 * 142,000
Market Value of Debt = $21,875,100

Market Value of Firm = Market Value of Debt + Market Value of Equity
Market Value of Firm = $21,875,100 + $45,700,000
Market Value of Firm = $67,575,100

Weight of Debt = Market Value of Debt / Market Value of Firm
Weight of Debt = $21,875,100 / $67,575,100
Weight of Debt = 0.3237

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