Vedder, Inc., has 6.2 million shares of common stock outstanding. The current sh
ID: 2765131 • Letter: V
Question
Vedder, Inc., has 6.2 million shares of common stock outstanding. The current share price is $61.20, and the book value per share is $4.20. Vedder also has two bond issues outstanding. The first bond issue has a face value of $70.2 million, a coupon rate of 7.2 percent, and sells for 97 percent of par. The second issue has a face value of $35.2 million, a coupon rate of 6.7 percent, and sells for 96 percent of par. The first issue matures in 22 years, the second in 14 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).)
Vedder, Inc., has 6.2 million shares of common stock outstanding. The current share price is $61.20, and the book value per share is $4.20. Vedder also has two bond issues outstanding. The first bond issue has a face value of $70.2 million, a coupon rate of 7.2 percent, and sells for 97 percent of par. The second issue has a face value of $35.2 million, a coupon rate of 6.7 percent, and sells for 96 percent of par. The first issue matures in 22 years, the second in 14 years.
Explanation / Answer
Number of share Outstanding = 6.2 million
Market price per share = $61.20
Book Value per share = $4.20
Market value of equity = 6.2 million × $61.20
= $379.44 million
Book value of equity = 6.2 million × $4.20
= $26.04 million
Book value of bond 1 = $70.2 million
Market value of bond 1 = 97% × 70.2 million
= $68.094 million
Book value of bond 2 = $35.2 million
Market value of bond 2 = 96% ×35.2 million
= $33.792 million
Book Value of total debt = $70.2 million + $35.2 million
= $105.40 million
Market value of total debt = $68.094 million + $33.792 million
= $101.886 million
Book value weight of equity = $26.04 / ($26.04 +$105.40)
= 19.81%
Hence, book value weight of equity is 19.81%.
Book value weight of debt = $105.40 / ($26.04 +$105.40)
= 80.19%
Hence, book value weight of debt is 80.19%
Market value weight of equity = $379.44 / ($379.44 +$101.886)
= 78.83%
Hence, market value weight of equity is 78.83%.
Market value weight of debt = $101.886 / ($379.44 +$101.886)
= 21.17%
Hence, market value weight of debt is 21.17%
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