Problem $12-8$ Book Value versus Market Value Problem $12-8$ Book Value versus Market Value

Pandora Manufacturing has $8$ million shares of common stock outstanding. The current

share price is $$87,$ and the book value per share is $$6.$ The company also has two bond

issues outstanding. The first bond issue has a face value of $$75$ million and a coupon

rate of $10$ percent and sells for $97$ percent of par. The second issue has a face value of

$$50$ million and a coupon rate of $11$ percent and sells for $105$ percent of par. The first

issue matures in $25$ years, the second in $7$ years.

a$.$ 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$.,$

$\mathrm{.}1616.)$

b$.$ What are the company's capital structure weights on a market value basis? $($Do not

round intermediate calculations and round your answers to $4$ decimal places, e$.$g$.,$

$\mathrm{.}1616.)$

c$.$ Which are more relevant, the book or market value weights?

Answer is complete but not entirely correct.

Pandora Manufacturing has $8$ million shares of common stock outstanding. The current

share price is $$87,$ and the book value per share is $$6.$ The company also has two bond

issues outstanding. The first bond issue has a face value of $$75$ million and a coupon

rate of $10$ percent and sells for $97$ percent of par. The second issue has a face value of

$$50$ million and a coupon rate of $11$ percent and sells for $105$ percent of par. The first

issue matures in $25$ years, the second in $7$ years.

a$.$ 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$.,$

$\mathrm{.}1616.)$

b$.$ What are the company's capital structure weights on a market value basis? $($Do not

round intermediate calculations and round your answers to $4$ decimal places, e$.$g$.,$

$\mathrm{.}1616.)$

c$.$ Which are more relevant, the book or market value weights?

Answer is complete but not entirely correct.