Bonaime, Inc., has 6.1 million shares of common stock outstanding. The current s
ID: 2784576 • Letter: B
Question
Bonaime, Inc., has 6.1 million shares of common stock outstanding. The current share price is $61.10, and the book value per share is $4.10. The company also has two bond issues outstanding. The first bond issue has a face value of $70.1 million, a coupon rate of 7.1 percent, and sells for 97.5 percent of par. The second issue has a face value of $35.1 million, a coupon rate of 6.6 percent, and sells for 96.5 percent of par. The first issue matures in 21 years, the second in 13 years.
A.What are the company’s capital structure weights on a book value basis?
Book value weight of equity Book value weight of debtB.What are the company’s capital structure weights on a market value basis?
Market value weight of equity Market value weight of debt
Explanation / Answer
CALCULATION OF BOOK VALUE WEIGHT Book Value Weight Amount (Million) Amount (Million) Common Stocks $ 25.01 19.21% (6.1 X 4.1) Bonds: First Bonds $ 70.10 Second Bond $ 35.10 $ 105.20 80.79% Total $ 130.21 100% CALCULATION OF MARKET VALUE WEIGHT Market Value Weight Amount (Million) Amount (Million) Common Stocks $ 61.10 37.41% Bonds: First Bonds $ 68.35 (70.1 * 97.50%) Second Bond $ 33.87 ($ 35.10 * 96.5%) $ 102 62.59% Total $ 163.32 100.00% Book Value Weight Market Value Weight Equity 19.21% 37.41% Debt 80.79% 62.59% Total 100.00% 100.00%