Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5 percent. The bonds have a par value of $2,000 and semiannual compounding. If the company has a $74.6 million market value of equity, what weight should it use for debt when calculating the cost of capital?

Occam Industrial Machines issued 105,000 zero coupon bonds 5 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 5.9 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5 percent. The bonds have a par value of $2,000 and semiannual compounding. If the company has a $74.6 million market value of equity, what weight should it use for debt when calculating the cost of capital?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 1PROB

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