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Suppose that Lil John Industries equity is currently selling for $37 per share and that 2 million shares are outstanding. As

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Answer #1

Assuming face value to be $1,000

Market value of debt = 30,000 * (103% of 1000 ) = 30,900,000

Market value of stock = 2,000,000 * 37 = 74,000,000

Total market value = 30,900,000 + 74,000,000 = 104,900,000

1)

Weight of equity = (74,000,000 / 104,900,000) * 100

Weight of equity = 70.54%

2)

Weight of debt = (30,900,000 / 104,900,000) * 100

Weight of debt = 29.46%

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