Vedder, Inc., has 7.1 million shares of common stock outstanding. The current sh
ID: 2717438 • Letter: V
Question
Vedder, Inc., has 7.1 million shares of common stock outstanding. The current share price is $62.10, and the book value per share is $5.10. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.1 million, a coupon rate of 7.1 percent, and sells for 92.5 percent of par. The second issue has a face value of $36.1 million, a coupon rate of 7.6 percent, and sells for 91.5 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? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)
(b)
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).)
(c)
Vedder, Inc., has 7.1 million shares of common stock outstanding. The current share price is $62.10, and the book value per share is $5.10. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71.1 million, a coupon rate of 7.1 percent, and sells for 92.5 percent of par. The second issue has a face value of $36.1 million, a coupon rate of 7.6 percent, and sells for 91.5 percent of par. The first issue matures in 21 years, the second in 13 years.
Explanation / Answer
(a)
On Book Value Basis
1.0000
(b) On Market Value basis
Vedder Incorporation
(c)
Market value weights are preferred over book value simply because an investor would demand market required rate of return on the market value of the capital and not the book value of the capital.
Vedder Incorporation Particulars Quantity Book value Total Weight Common Stock-Shares 7.1 Million 5.10 36.21 0.2525 Debts 107.20 0.7475 Total 143.411.0000
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