Vedder, Inc., has 6.7 million shares of common stock outstanding. The current sh

Question

Vedder, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70, and the book value per share is $4.70. Vedder also has two bond issues outstanding. The first bond issue has a face value of $70.7 million, a coupon rate of 7.2 percent, and sells for 94.5 percent of par. The second issue has a face value of $35.7 million, a coupon rate of 7.2 percent, and sells for 93.5 percent of par. The first issue matures in 22 years, the second in 14 years.

(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).)

(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).)

(c)

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).)

Explanation / Answer

c) both are relevant it depends and cases and circumstances of each company for example: The Coca-Cola Co. has historically traded at a P/B ratio of 4 to 5. This means that Coca-Cola's market value has typically been 4 to 5 times larger than the stated book value as seen on the balance sheet. In other words, the market values the firm's business as being significantly worth more than the company's value on its books.

shares Shares outstanding 6.7 million shares Current share price $61.70 Market value $413.39 million   Bookvalue per share $4.70 Bookvalue $31.49 million   company’s capital structure weights on a book value basis Bookvalue Weights Bookvalue equity $31.49 million 0.2284 (31.49/137.89) Bookvalue debt $106.40 (70.7+35.7) 0.7716 (106.40/137.89) Total $137.89

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