Hero Manufacturing has 7.6 million shares of common stock outstanding. The current share price is $67 and
Question:
Hero Manufacturing has 7.6 million shares of common stock outstanding. The current share price is $67 and the book value per share is $4. The company also has two bond issues outstanding, both with semiannual coupons. The first bond issue has a face value of $80 million and a coupon rate of 6.8 percent and sells for 109.5 percent of par. The second issue has a face value of $65 million and a coupon rate of 7.1 percent and sells for 112.4 percent of par. The first issue matures in 9 years, the second in 25 years.
a. What are the company’s capital structure weights on a book value basis?
b. What are the company’s capital structure weights on a market value basis?
c. Which are more relevant, the book or market value weights? Why?
Common StockCommon stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Step by Step Answer:
a The book value of equity is the book value per share times the number of shares and the boo...View the full answer
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
