Problem 12-12 Book Value versus Market Value [LO 4] Regions, Inc., has 6.9 milli
ID: 2699001 • Letter: P
Question
Problem 12-12 Book Value versus Market Value [LO 4]
Regions, Inc., has 6.9 million shares of common stock outstanding. The current share price is $61.90, and the book value per share is $4.9. Regions also has two bond issues outstanding. The first bond issue has a face value of $70.9 million, a 7.4 percent coupon, and sells for 93.5 percent of par. The second issue has a face value of $35.9 million, a 7.4 percent coupon, and sells for 92.5 percent of par. The first issue matures in 18 years, the second in 10 years.
(a)
What are the company%u2019s capital structure weights on a book value basis? (Round your answers to 4 decimal places (e.g., 32.1616).)
(b)
What are the company%u2019s capital structure weights on a market value basis? (Round your answers to 4 decimal places (e.g., 32.1616).)
Regions, Inc., has 6.9 million shares of common stock outstanding. The current share price is $61.90, and the book value per share is $4.9. Regions also has two bond issues outstanding. The first bond issue has a face value of $70.9 million, a 7.4 percent coupon, and sells for 93.5 percent of par. The second issue has a face value of $35.9 million, a 7.4 percent coupon, and sells for 92.5 percent of par. The first issue matures in 18 years, the second in 10 years.
Explanation / Answer
(a)What are the company%u2019s capital structure weights on a book value basis? (Round your answers to 4 decimal places (e.g., 32.1616).)
Equity Share based on BV = 6.9M*$4.90 = $33.81M
Book value based Bond = 70.9M+35.9M = $106.80M
Total Asset = 33.81+$106.80 = $140.61
Book value weight of equity = 33.81/$140.61=24.0452%
Book value weight of debt = 106.80/140.61 =75.9548%
(b)What are the company%u2019s capital structure weights on a market value basis? (Round your answers to 4 decimal places (e.g., 32.1616).)
MV of Equity = 6.9M*61.90 = $427.11M
MV of Debt = 93.5%*70.9M+ 92.5%*35.9M =$99.50M
Total MV of Asset = 427.11+99.50 = $526.61M
Market value weight of equity = 427.11/$526.61 = 81.1056%
Market value weight of debt = 99.50/526.61 = 18.8944%