Question
Ace 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
Ace 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. If the company has a $89 million market value of equity, what weight should it use for debt when calculating the cost of capital? Assume semiannual compounding. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)
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