Erna Corp. has 10 million shares of common stock outstanding. The current share

Question

Erna Corp. has 10 million shares of common stock outstanding. The current share price is $82, and the book value per share is $5. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a coupon of 5 percent, and sells for 97 percent of par. The second issue has a face value of $55 million, has a coupon of 6 percent, and sells for 105 percent of par. The first issue matures in 20 years, the second in 9 years.

What are Erna

Erna Corp. has 10 million shares of common stock outstanding. The current share price is $82, and the book value per share is $5. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a coupon of 5 percent, and sells for 97 percent of par. The second issue has a face value of $55 million, has a coupon of 6 percent, and sells for 105 percent of par. The first issue matures in 20 years, the second in 9 years.

Explanation / Answer

a

Equity/value = 5*10Million/(5*10million + 85million + 55million) = 50/190 = 26.32%

Debt/Value = 130/190= 68.42%

b

Equity/value = 82*10Million/(82*10million + 85million*97% + 55million*105%) = 820/960.2 =85.4%

Debt/Value = 140.2/960.2 = 14.60%

b

Equity/value = 82*10Million/(82*10million + 85million*97% + 55million*105%) = 820/960.2 =85.4%

Debt/Value = 140.2/960.2 = 14.60%

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