Vedder, Inc., has 6.3 million shares of common stock outstanding. The current sh
ID: 2751380 • Letter: V
Question
Vedder, Inc., has 6.3 million shares of common stock outstanding. The current share price is $61.30, and the book value per share is $4.30. Vedder also has two bond issues outstanding. The first bond issue has a face value of $70.3 million, a coupon rate of 7.3 percent, and sells for 96.5 percent of par. The second issue has a face value of $35.3 million, a coupon rate of 6.8 percent, and sells for 95.5 percent of par. The first issue matures in 19 years, the second in 11 years. Required:
(a) What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).) Book value weight of equity Book value weight of debt
(b) What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).) Market value weight of equity Market value weight of debt
(c) Which are more relevant, the book or market value weights?
Explanation / Answer
(a) What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)
Book Value of Equity = No of of common stock outstanding * Book Value per share
Book Value of Equity = 6.3*4.30
Book Value of Equity = 27.09 Million
Book Value of Debt= Book Value of Debt 1st issue + Book Value of Debt 2nd issue
Book Value of Debt= 70.30 + 35.3
Book Value of Debt= 105.60 Million
Total Book Value = 27.09 + 105.60 = 132.69 Million
Book value weight of equity = Book Value of Equity/Total Book Value
Book value weight of equity = 27.09/132.69
Book value weight of equity = 0.2042
Book value weight of debt = Book Value of Debt/Total Book Value
Book value weight of debt = 105.60/132.69
Book value weight of debt = 0.7958
(b) What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)
Market Value of Equity = No of of common stock outstanding * Market Value per share
Market Value of Equity = 6.3*61.30
Market Value of Equity = 386.19 Million
Market Value of Debt= Market Value of Debt 1st issue + Market Value of Debt 2nd issue
Market Value of Debt= 70.30*96.5% + 35.3*95.5%
Market Value of Debt= 101.551 Million
Total Market Value = 386.19 + 101.551= 487.741 Million
Market value weight of equity = Market Value of Equity/Total Market Value
Market value weight of equity = 386.19/487.741
Market value weight of equity = 0.7918
Market value weight of debt = Market Value of Debt/Total Market Value
Market value weight of debt = 101.551/487.741
Market value weight of debt = 0.2082
(c) Which are more relevant, the book or market value weights?
Market value weights
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