Vedder, Inc., has 6.3 million shares of common stock outstanding. The current sh

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.

(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)

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.

Explanation / Answer

a) Book Value of the capital structure is:

Common Stock = 6300000 * $4.30 = $27090000

Debt = $70300000 + $35300000 = $105600000

Total = $132690000

b) Market Value of the capital structure is:

Common Stock = 6300000 * $61.30 = $386190000

Debt = $70300000*96.50% + $35300000*95.50% = $67839500 + $33711500 = $101551000

Total = $487741000

C) Market Value weights are more important because they reflect the company's outlook in the market and is considered to be presenting a true and better picture of the company's performance and image.

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