Vijay Occam Industrial Machines issued 115,000 zero coupon bonds 7 years ago. The bonds originally had 30 years to maturity with ayield to maturity of 6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.1 percent.The bonds have a par value of $2,000 and semiannual compounding. If the company has a $76.2 million market value of equity,what weight should it use for debt when calculating the cost of capital?Note: Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.Weight of debt

Step 1: The weight of debt is the market value of debt divided by total value of the firm. To…

Answered: Occam Industrial Machines issued…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 19P

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You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 6.60 percent coupon bonds are selling at a price of $825.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding, answer the following questions: What is the current YTM of the bonds?
Occam Industrial Machines issued 188,000 zero coupon bonds 8 years ago. The bonds originally had 30 years to maturity with a yield to maturity of 6.6 percent. Interest rates have recently decreased, and the bonds now have a yield to maturity of 5.7 percent. The bonds have a par value of $2,000 and semiannual compounding. If the company has a $89 million market value of equity, what weight should it use for debt when calculating the cost of capital? Note: Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.
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Occam Industrial Machines issued 145,000 zero coupon bonds six 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 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.1 percent. Assume semiannual compounding for the bonds. What is the dollar price of the bonds? What is the market value of the company's debt? If the company has a $46 million market value of equity, what weight should it use for debt when calculating the cost of capital?
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You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.6 percent coupon bonds are selling at a price of $849.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions. What is the current YTM of the bonds? (round intermediate calculations to 4 decimal places, and final answer to 0 decimal places) What is the after-tax cost of debt for this firm if it has a 30 percent marginal and average tax rate? (Round final answer to 2 decimal places, e.g. 15.25%.)
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You are analyzing the cost of debt for a firm. You know that the firm's 14-year maturity, 8.6 percent coupon bonds are selling at a price of $832.00. The bonds pay interest semiannually. If these bonds are the only debt outstanding, answer the following questions. Problem 13.17 a1-a2(a1) Your answer is incorrect. What is the current YTM of the bonds? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to O decimal places, e.g. 15%.) Current YTM for the bonds %
Two years ago, Company XYZ issued $100 million worth of ten-year bonds with a face value of $,000.00 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% p.a. Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a. a) Determine the market price of the bonds at issue based on an appropriate model. b) Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today. c) Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.
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