Question

Ace Industrial Machines issued 145,000 zero coupon bonds 7 years ago. The bonds originally had 30...

Ace Industrial Machines issued 145,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.2 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.3 percent. The bonds have a par value of $2,000. If the company has a $81 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.)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Calculation of price of bond:

FV = 2000
Nper = (30 - 7) * 2 = 46
Rate = 5.3% / 2
PMT = 0

Price of the bond can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(5.3%/2,46,0,-2000)
= $600.51

Market value of debt = Price of the bond * Number of bonds
= $600.51 * 145,000
= $87,073,525.21

Weight of debt = Market value of debt / (Market value of debt + Market value of equity)
= $87,073,525.21 / ($87,073,525.21 + $81,000,000)
= 0.5181


Weight of debt = 0.5181

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Liu Industrial Machines issued 149,000 zero coupon bonds six years ago. The bonds originally had 30...
Liu Industrial Machines issued 149,000 zero coupon bonds six years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.4 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.5 percent. If the company has a $46.4 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...
Ace Industrial Machines issued 144,000 zero coupon bonds five years ago. The bonds have a par...
Ace Industrial Machines issued 144,000 zero coupon bonds five years ago. The bonds have a par value of $1,000 and originally had 30 years to maturity with a yield to maturity of 7.4 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.5 percent. What is the dollar price of the bonds? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) What is the market value of...
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...
Fibbo, Inc. issued one year ago annual coupon paying bonds that orignially had 13 years to...
Fibbo, Inc. issued one year ago annual coupon paying bonds that orignially had 13 years to maturity. These bonds have a face value of $1,000 and a current market value of $1,030. At this market value, the bonds have a yield-to-maturity of 4.14% What is the coupon rate for these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
purchased bonds five years ago when they were issued at par. These bonds originally had 30...
purchased bonds five years ago when they were issued at par. These bonds originally had 30 years until maturity, a semi annual coupon payment, a coupon rate of 7% and a par value of $1,000. You want to sell the bonds today, the market rate is now 6%, what is your realized return on these bonds?
Six years ago XYZ International issued some 65-year zero-coupon bonds that were priced with a market's...
Six years ago XYZ International issued some 65-year zero-coupon bonds that were priced with a market's required yield to maturity of 11 percent and a par value of $1,000. What did these bonds sell for when they were issued? Now that 6 years have passed and the market's required yield to maturity on these bonds has climbed to 13 percent, what are they selling for? If the market's required yield to maturity had fallen to 9 percent, what would they...
1. West Corp. issued 15-year bonds two years ago at a coupon rate of 8.2 percent....
1. West Corp. issued 15-year bonds two years ago at a coupon rate of 8.2 percent. The bonds make semiannual payments. If these bonds currently sell for 103 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) YTM = % 2. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments....
Fifteen years ago, Namson and Co. issued 25-year coupon bonds. The yield to maturity at the...
Fifteen years ago, Namson and Co. issued 25-year coupon bonds. The yield to maturity at the time of issuance was 10 percent and the bonds sold at 120% of par value. The bonds are currently selling at 85% of par value. What is the current yield to maturity for these bonds? [Assume that the coupon is paid annually]. (Round your answer to 2 decimal places and record as a percent but without a percent sign. For example, record 18.3893 8.47...
Polar Bear, Inc. issued one year ago annual coupon paying bonds that orignially had 13 years...
Polar Bear, Inc. issued one year ago annual coupon paying bonds that orignially had 13 years to maturity. These bonds have a face value of $1,000 and a current market value of $1,030. At this market value, the bonds have a yield-to-maturity of 4.14% What is the coupon rate for these bonds?
Braemar Corp. issued 30 year bonds 2 years ago at a coupon rate of 7.1%. The...
Braemar Corp. issued 30 year bonds 2 years ago at a coupon rate of 7.1%. The bond makes semi annual payments. If these bonds currently sell for 105% of par/face value, what is the yield to maturity?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT