Question

Masterson, Inc., has 4.1 million shares of common stock outstanding. The current share price is $84, and the book value per share is $11. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon rate of 5.1 percent, and sells for 98 percent of par. The second issue has a face value of $50 million, has a coupon rate of 5.60 percent, and sells for 108 percent of par. The first issue matures in 20 years, the second in 12 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., .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., .1616.) c. Which are more relevant, the book or market value weights? a. Weight of equity Weight of debt Weight of equity Weight of debt c. More relevant

Answer 1

Particulars common stock first issue second issue Total Book value Book value weight amount [millions] (amount/total) $45.10 0.2732 $70.00 0.4240 $50.00 0.3028 $165.10 Weight of equity on book value basis = Weight of debt on book value basis = 0.2732 0.7268 Particulars common stock first issue second issue Total market value Market value weight amount [millions ] (amount/total) $344.40 0.7375 $68.60 0.1469 $54.00 0.1156 $467.00 Weight of equity on market value basis = Weight of debt on market value basis = 0.7375 0.2625 market value