Question

(Calculating capital structure​ weights) The common stock of​ Moe's Restaurant is currently selling for ​$79 per​ share, has a book value of ​$ 56 per​ share, and there are 1.14 million shares of common stock outstanding. In​ addition, the firm also has 119,000 bonds outstanding with a par value of ​$ 1,000 that are selling at 113 percent of par. What are the capital structure weights that​ Moe's should use to analyze its capital​ structure? (Round to two decimal​ places.)

Answer 1

MV of equity=Price of equity*number of shares outstanding

MV of equity=79*1140000

=90060000

MV of Bond=Par value*bonds outstanding*%age of par

MV of Bond=1000*119000*1.13

=134470000

MV of firm = MV of Equity + MV of Bond

=90060000+134470000

=224530000

Weight of equity = MV of Equity/MV of firm

Weight of equity = 90060000/224530000

W(E)=0.4011 = 40.11%

Weight of debt = MV of Bond/MV of firm

Weight of debt = 134470000/224530000

W(D)=0.5989 = 59.89%