Problem:
Bennington Industrial Machines issued 140,000 zero coupon bonds five years ago. The bonds 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.
Required:
Question: If the company has a $45.5 million market value of equity, what weight should it use for debt when calculating the cost of capital?
Note: Be sure to show how you arrived at your answer.