Erna Corp. has 6 million shares of common stock outstanding. The current share p

Question

Erna Corp. has 6   million shares of common stock outstanding. The current share price is $72,   and the book value per share is $7. Erna Corp. also has two bond issues   outstanding. The first bond issue has a face value of $70 million, has a   coupon of 7 percent, and sells for 97 percent of par. The second issue   has a face value of $50 million, has a coupon of 8 percent, and sells   for 106 percent of par. The first issue matures in 22 years, the second in 6   years.

a.

What are Erna

Erna Corp. has 6   million shares of common stock outstanding. The current share price is $72,   and the book value per share is $7. Erna Corp. also has two bond issues   outstanding. The first bond issue has a face value of $70 million, has a   coupon of 7 percent, and sells for 97 percent of par. The second issue   has a face value of $50 million, has a coupon of 8 percent, and sells   for 106 percent of par. The first issue matures in 22 years, the second in 6   years.

Explanation / Answer

Erna Corp. has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon of 7 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, has a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 6 years.

Market Value of First Bond= 97%*70 million =$67.9 million

Market Value of Second Bond = 50*106% =$53 million

Total Market Value of  Debt = 53+67.9= $120.9 million

Market Value of Equity = 6*72=$432 million

a.

What are Erna

a.

What are Erna

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