Ten pins manufacturing has 9 million shares of common stock outstanding. the current share price is $81, and the book value per share is $8. the company also has two bond issues outstanding. the first bond issue has a face value of $80 million and a coupon rate of 10 percent and sells for 96 percent of par. the second issue has a face value of $50 million and a coupon rate of 11 percent and sells for 104 percent of par. the first issue matures in 25 years, the second in 8 years. 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., 32.1616.)

Debt = 0.6436  and Equity = 0.3564

Explanation:

For computing the weights, first we have to determine the book value of debt and equity which is shown below:

Book value of debt would be

= Face value of first bond + Face value of second bond

= $80 million + $50 million

= $130 million

And, the book value of equity would be

= Number of shares × book value per share

= 9 million shares × $8

= $72 million

Now the total firm value would be

= $130 million + $72 million

= $202 million

The weighted of Debt = (Debt ÷ total firm value)

                                    = ($130 million ÷ $202 million)

                                    = 0.6436

And, The weighted of equity = (Equity ÷ total firm value)

                                                = ($72 million ÷ $202 million)

                                                = 0.3564

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