Suppose that a company's equity is currently selling for $28.25 per share and that there are 4.7 million shares outstanding. If the firm also has 27,000 bonds outstanding, which are selling at 100.5 percent of par, what are the firm's current capital structure weights for equity and debt, respectively?

Question

10-08-2024
Mathematics

High School

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Suppose that a company's equity is currently selling for $28.25 per share and that there are 4.7 million shares outstanding. If the firm also has 27,000 bonds outstanding, which are selling at 100.5 percent of par, what are the firm's current capital structure weights for equity and debt, respectively?

Answer :

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srangoli003 srangoli003 · Answer 1 · 2023-10-17T01:18:54-04:00

Final answer:

To determine the firm's current capital structure weights for equity and debt, calculate the market value of equity and debt, and divide it by the total market value of the company's capital structure.

Explanation:

To determine the firm's current capital structure weights for equity and debt, we need to calculate the market value of equity and debt and then divide it by the total market value of the company's capital structure.

The market value of equity is calculated by multiplying the share price by the number of shares outstanding:

Market Value of Equity = Share Price * Number of Shares Outstanding

Similarly, the market value of debt is calculated by multiplying the bond price by the number of bonds outstanding:

Market Value of Debt = Bond Price * Number of Bonds Outstanding

Once we have the market values of equity and debt, we can calculate the capital structure weights by dividing the market value of equity by the total market value of the capital structure, and the market value of debt by the total market value of the capital structure.

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