Question

Rooster, Inc., has 9 million shares of common stock outstanding. The current share price is $55, and the book value per share is $6. Rooster also has two bond issues outstanding that both originally sold at par. The first bond issue has a face value of $90 million, has an 8 percent coupon, and sells for 104 percent of par. The second issue has a face value of $50 million, has a 7.5 percent coupon, and sells for 106 percent of par. The first issue matures in 10 years, the second in 6 years.

a. What are Rooster’s capital structure weights on a book value basis?

b. What are Rooster’s capital structure weights on a market value basis?

Answer 1