Ask Question
5 July, 14:57

Ten Pins Manufacturing has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million and a coupon rate of 10 percent and sells for 96 percent of par. The second issue has a face value of $50 million and a coupon rate of 11 percent and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e. g., 32.1616.)

+1
Answers (1)
  1. 5 July, 18:39
    0
    Debt = 0.6436 and Equity = 0.3564

    Explanation:

    For computing the weights, first we have to determine the book value of debt and equity which is shown below:

    Book value of debt would be

    = Face value of first bond + Face value of second bond

    = $80 million + $50 million

    = $130 million

    And, the book value of equity would be

    = Number of shares * book value per share

    = 9 million shares * $8

    = $72 million

    Now the total firm value would be

    = $130 million + $72 million

    = $202 million

    The weighted of Debt = (Debt : total firm value)

    = ($130 million : $202 million)

    = 0.6436

    And, The weighted of equity = (Equity : total firm value)

    = ($72 million : $202 million)

    = 0.3564
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Ten Pins Manufacturing has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers