CH 12 Drill Q1 - PLEASE ROUND ANSWERS TO 4 DECIMAL PLACES Vedder Inc., has 7.7 m
ID: 2748801 • Letter: C
Question
CH 12 Drill Q1 - PLEASE ROUND ANSWERS TO 4 DECIMAL PLACES
Vedder Inc., has 7.7 million shares of common stock outstanding. The current share price is $62.70, and the book value per share is $5.70, Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.7 million, a coupon rate of 7.2 percent, and sells for 89.5 percent of par. The second issue has a face value of $36.7 million, a coupon rate of 8.2 percent, and sells for 88.5 percent of par. The first issue matures in 22 years, the second in 14 years. 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).) Book value weight of equity Book value weight of debt 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).) Market value weight of equity Market value weight of debtExplanation / Answer
(a)
Book value of shares = 5.70*7.7 = 43.89 Million
Book value of bond = 71.3 + 36.7 = 108.4 Million
Total book value = 152.29 Million
Book value weight of equity = 43.89/152.29 = 0.2882
Book value weight of debt = 1-0.2882 = 0.7118
(b)
Market value of shares: 62.7*7.7 = 482.79 Million
Market value of bonds = 0.895 *71.7 +0.885*36.7 = 96.651 Million
Total = 579.441 Million
Market value weight of equity = 482.79/579.441 = 0.8332
Market value weight of bond = 1-0.8332 = 0.1668