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.

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.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Uber Technologies Inc. issued $2 billion of bonds in October 2018. The total bond issuance included $500 million of five-year bonds with a 7.5% coupon and $1.5 billion of eight-year bonds with an 8% coupon. How would Uber’s financial statements be impacted by its $2 billion bond issuance? Would you have bought the bonds if you could? Why or why not?
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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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