Chapter 13, Problem 8QAP

a

Summary Introduction

Adequate information:

Common stock outstanding $\left(\text{SO}\right)$ = 7,600,000

Book value per share $\left({\text{BV}}_{\text{S}}\right)$ = $4

Book value of Bond I $\left({\text{BV}}_{\text{BI}}\right)$ = $80,000,000

Coupon rate of Bond I $\left({\text{CR}}_{\text{BI}}\right)$ = 6.80%

Face value of Bond I $\left({\text{FV}}_{\text{BI}}\right)$ = $1,000

Selling rate of Bond I $\left({\text{R}}_{\text{BI}}\right)$ = 109.5%

Price of Bond I $\left({\text{PV}}_{\text{BI}}\right)$ = $1,095

Term duration of Bond I $\left({\text{T}}_{\text{BI}}\right)$ = 9 years

Number of compounding periods in a year $\left({\text{N}}_{\text{BI}}\right)$ = 2

Book value of Bond II $\left({\text{BV}}_{\text{BII}}\right)$ = $65,000,000

Coupon rate of Bond II $\left({\text{BV}}_{\text{BII}}\right)$ = 7.10%

Face value of Bond II $\left({\text{FV}}_{\text{BII}}\right)$ = $1,000

Selling rate of Bond II $\left({\text{R}}_{\text{BII}}\right)$ = 112.4%

Price of Bond II $\left({\text{PV}}_{\text{BII}}\right)$ = $1,124

Term duration of Bond II $\left({\text{T}}_{\text{BII}}\right)$ = 25 years

Number of compounding periods in a year $\left({\text{N}}_{\text{BII}}\right)$ = 2

To compute: Capital structure weights on book value basis

Introduction: The Capital structure weights refers to the weightage or proportion of capital sources.

b

Summary Introduction

Adequate information:

Current price per share $\left({\text{P}}_{\text{S}}\right)$ = $67

Selling rate of Bond I $\left({\text{R}}_{\text{BI}}\right)$ = 109.5%

Selling rate of Bond II $\left({\text{R}}_{\text{BII}}\right)$ = 112.4%

To compute: Capital structure weights on market value basis

Introduction: The Capital structure weights refers to the weightage or proportion of capital sources.

c

Summary Introduction

To compute: The more relevant between book value or market value weights