Question

Erna Corp. has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $75 million, has a coupon of 10 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, has a coupon of 11 percent, and sells for 105 percent of par. The first issue matures in 25 years, the second in 7 years.

a.	What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))

Equity/Value
Debt/Value

b.	What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))

Equity/Value
Debt/Value

c.

Which are more relevant, the book or market value weights?

	Market value
	Book value

a.	What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))

Equity/Value
Debt/Value

b.	What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))

Equity/Value
Debt/Value

c.

Which are more relevant, the book or market value weights?

	Market value
	Book value

Answer 1