Vedder, Inc., has 7.8 million shares of common stock outstanding. The current sh

Question

Vedder, Inc., has 7.8 million shares of common stock outstanding. The current share price is $62.80, and the book value per share is $5.80. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.8 million, a coupon rate of 7.3 percent, and sells for 89 percent of par. The second issue has a face value of $36.8 million, a coupon rate of 8.3 percent, and sells for 88 percent of par. The first issue matures in 19 years, the second in 11 years.

(a)

What are the company

Vedder, Inc., has 7.8 million shares of common stock outstanding. The current share price is $62.80, and the book value per share is $5.80. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.8 million, a coupon rate of 7.3 percent, and sells for 89 percent of par. The second issue has a face value of $36.8 million, a coupon rate of 8.3 percent, and sells for 88 percent of par. The first issue matures in 19 years, the second in 11 years.

Explanation / Answer

Statement showing computation on the basis of Book Value Stock Number Price Market Value Weight Common Stock                 7,800,000.00                        5.80            45,240,000.00                          0.2941 Bond issue 1                       71,800.00               1,000.00            71,800,000.00                          0.4667 Bond issue 2                       36,800.00               1,000.00            36,800,000.00                          0.2392         153,840,000.00                          1.0000 Book Value weight of Equity                             0.2941 Book Value weight of Debt(Debt 1 + Debt 2)                             0.7059 Statement showing computation on the basis of Market Value Stock Number Price Market Value Weight Common Stock                 7,800,000.00                     62.80         489,840,000.00                          0.8357 Bond issue 1                       71,800.00                   890.00            63,902,000.00                          0.1090 Bond issue 2                       36,800.00                   880.00            32,384,000.00                          0.0553         586,126,000.00                          1.0000 Market Value weight of Equity                             0.8357 Market Value weight of Debt (Debt 1 + Debt 2)                             0.1643 Market Value weights are more relevant as they depit true picture of the position of the company

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