Question

has 8.3 million shares of common stock outstanding. The current share price is $53, and the book value per share is $4. also has two bond issues outstanding. The first bond issue has a face value of $70 million and a coupon rate of 7 percent and sells for 108.3 percent of par. The second issue has a face value of $60 million and a coupon rate of 7.5 percent and sells for 108.9 percent of par. The first issue matures in 8 years, the second in 27 years. (a) What are capital structure weights on a book value basis

Answer 1

• Equity = 20.34%
• Debt = 79.66%

Step-by-step explanation:

Book value of stock:

= 8,300,000 * 4

= $33,200,000

Total book value = BV of stock + BV of bonds

= 33,200,000 + 70,000,000 + 60,000,000

= $‭163,200,000‬.

Weight of Equity:

= 33,200,000 / ‭163,200,000‬

= 20.34%

Weight of debt:

= (70,000,000 + 60,000,000) / ‭163,200,000‬

= 79.66%