Regions, Inc., has 6.7 million shares of common stock outstanding. The current s
ID: 2674555 • Letter: R
Question
Regions, Inc., has 6.7 million shares of common stock outstanding. The current share price is $61.70, and the book value per share is $4.7. Regions also has two bond issues outstanding. The first bond issue has a face value of $70.7 million, a 7.2 percent coupon, and sells for 94.5 percent of par. The second issue has a face value of $35.7 million, a 7.2 percent coupon, and sells for 93.5 percent of par. The first issue matures in 22 years, the second in 14 years.Required:
(a) What are the companys capital structure weights on a book value basis?
Explanation / Answer
Market Value of equity = 6.7 million*$61.70 = $413.39 million Book value of equity = 6.7 million*$4.7 = $ 31.49 million a)Company’s capital structure weights on a book value basis Book value of debt = Sum of face value of bonds = $70.7 million+ $35.7 million = 106.4 million D/V = 106.4 /(106.4 + 31.49) = 0.77162956 E/V = 0.22837044 b) company’s capital structure weights on a market value Market value of bond = Price of bond = 94.5*$70.7 million+ 93.5 *$35.7 million =100.191 million D/V = 100.191/(100.191+413.39 ) = 0.195 E/V = 0.804916849