Vedder, Inc., has 7.4 million shares of common stock outstanding. The current sh
ID: 2646762 • Letter: V
Question
Vedder, Inc., has 7.4 million shares of common stock outstanding. The current share price is $62.40, and the book value per share is $5.40. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.4 million, a coupon rate of 7.4 percent, and sells for 91 percent of par. The second issue has a face value of $36.4 million, a coupon rate of 7.9 percent, and sells for 90 percent of par. The first issue matures in 18 years, the second in 10 years.
(a)
What are the company
Vedder, Inc., has 7.4 million shares of common stock outstanding. The current share price is $62.40, and the book value per share is $5.40. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.4 million, a coupon rate of 7.4 percent, and sells for 91 percent of par. The second issue has a face value of $36.4 million, a coupon rate of 7.9 percent, and sells for 90 percent of par. The first issue matures in 18 years, the second in 10 years.
Explanation / Answer
a) Calculation of Book Value of Equity: 7,400,000 x 5.40 = $39,960,000
Book Value of First Issue of Bond: $71,400,000
Book Value of Second Issue of Bond: $36,400,000
Total of Book Value = $147,760,000
Book Value Weight of Equity = 39,960,000 / 147,760,000 = 27.0439
Book Value Weight of Debt = 107,800,000 / 147,760,000 = 72.9561
b) On Market Value Basis:
Market Value of Equity = 7.4 million x 62.40 = $461.76 million
Market Value of first Bond = 71.4 x 91% = $64.974 million
Market Value of Second Bond = 36.4 x 90% = $32.76 million
Total Market Value of Bond = $97.734 million
Total Market value of the Company = 461.76 + 97.734 = $559.494 million
Market Value Weight of Equity = 461.76 / 559.494 = 82.5317
Market Value Weight of Debt = 97.734/ 559.494 = 17.4683
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