Regions, Inc., has 6.2 million shares of common stock outstanding. The current s
ID: 2696122 • Letter: R
Question
Regions, Inc., has 6.2 million shares of common stock outstanding. The current share price is $61.20, and the book value per share is $4.2. Regions also has two bond issues outstanding. The first bond issue has a face value of $70.2 million, a 7.2 percent coupon, and sells for 97.0 percent of par. The second issue has a face value of $35.2 million, a 6.7 percent coupon, and sells for 96.0 percent of par. The first issue matures in 22 years, the second in 14 years. Required: What are the company's capital structure weights on a book value basis? (Round your answers to 4 decimal places (e.g., 32.1616).) Book value weight of equity Book value weight of debt What are the company's capital structure weights on a market value basis? (Round your answers to 4 decimal places (e.g., 32.1616).) Market value weight of equity Market value weight of debt Which are more relevant, the book or market value weights?Explanation / Answer
a)BV of equity = 6.2 * 4.2 = $26.0400 million
BV of debt = 70.20+ 35.20 = $105.4000 million
As per Book value
Weight of equity =26.04/(26.04+105.40) = 0.1981
Weight of Debt =105.40/(26.04+105.40)= 0.8019
b)MV of equity =6.20*61.20 = $379.4400 million
MV of debt =70.20*97%+ 35.20*96% = $ 101.8860 million
As per Market value
Weight of equity = 379.44/(379.44+101.886) = 0.7883
Weight of Debt = 101.886/(379.44+101.886) =0.2117
c)The Market value weight are more relevantbecause it provide more accurate weight as it incorpoarte the market risk also