Erna Corp. has 9 million shares of common stock outstanding. The current share p
ID: 2750224 • Letter: E
Question
Erna Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, has a coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))
What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))
Erna Corp. has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, has a coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
Explanation / Answer
Percentage of Equity =
Book Value of Equity/
Book Value of Equity + Book Value of Debt
Percentage of Debt =
Book Value of Debt/
Book Value of Equity + Book Value of Debt
% of Equity = 72000000/(72000000+130000000)=72000000/202000000=35%
% of Debt =130000000/(72000000+130000000)=65%
Percentage of Equity =
Market Value of Equity/
Market Value of Equity + Market Value of Debt
Percentage of Debt =
Market Value of Debt/
Market Value of Equity + Market Value of Debt
% of Equity =729000000/(729000000+128800000)=85 %
% of Debt =128800000/(729000000+128800000)=15%
Percentage of Equity =
Book Value of Equity/
Book Value of Equity + Book Value of Debt
Percentage of Debt =
Book Value of Debt/
Book Value of Equity + Book Value of Debt
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