Problem:
DeVille Industrial Machines issued 154,000 zero coupon bonds seven years ago. The bonds originally had 30 years to maturity with a 7.4 percent yield to maturity. Interest rates have recently increased, and the bonds now have an 8.5 percent yield to maturity.
Required:
Question: If the company has a $46.9 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.