A company\'s assets have a total book value is $163.2 million. The company has 8

Question

A company's assets have a total book value is $163.2 million. The company has 8.3 million shares of common stock outstanding which are trading at $53 per share. They also have two bond issues circulating on secondary markets. One set of bonds has a face value of $70 million and a coupon rate of 7 percent; it matures in 8 years an is trading at 108.3 percent of par. The other bond issue has a face value of $60 million and a coupon rate of 7.5 percent; it matures in 27 years and is trading at 108.9 percent of par. On a book value basis, the company's capital structure weights are:

Explanation / Answer

Wd=Book value of debt=70+60=130 million

We=Book value of equity=Total assets-book value of debt=163.2-130=33.2

hence Weight of equity=33.2/163.2=0.204

weight of debt=130/163.2=0.796

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