Vedder, Inc., has 7.4 million shares of common stock outstanding. The current sh
ID: 2635529 • Letter: V
Question
Vedder, Inc., has 7.4 million shares of common stock outstanding. The current share price is $62.40, and the book value per share is $5.40. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.4 million, a coupon rate of 7.4 percent, and sells for 91 percent of par. The second issue has a face value of $36.4 million, a coupon rate of 7.9 percent, and sells for 90 percent of par. The first issue matures in 18 years, the second in 10 years. Required:
(a) What are the companys 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 companys 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 ?
Explanation / Answer
Vedder, Inc., has 7.4 million shares of common stock outstanding. The current share price is $62.40, and the book value per share is $5.40. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.4 million, a coupon rate of 7.4 percent, and sells for 91 percent of par. The second issue has a face value of $36.4 million, a coupon rate of 7.9 percent, and sells for 90 percent of par. The first issue matures in 18 years, the second in 10 years. Required:
(a) What are the companys 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 = 7.4 Million*5.40 = 39.96 Million
Book Value of Debt = 71.40 Million + 36.40 Million = 107.80 Million
Total Book Value = 147.76 Million
Book value weight of equity = 39.96/147.76
Book value weight of equity = 0.2704
Book value weight of debt = 107.80/147.76
Book value weight of debt = 0.7296
(b) What are the companys 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 = 7.4 Million*62.40 = 461.76 Million
Market Value of Debt = 71.40 Million*91% + 36.40 Million *90% = 97.734 Million
Total Market Value = 559.494 Million
Market value weight of equity = 461.76/559.494
Market value weight of equity = 0.8253
Market value weight of debt = 97.734/559.494
Market value weight of debt = 0.1747