Suppose that a company's equity is currently selling for $30 per share and that there are 5 million shares outstanding. If the firm also has 20 thousand bonds outstanding, which are selling at 98 percent of par ($1,000), what are the firm's current capital structure weights for equity and debt respectively?

Question

Quizplus · Accepted Answer

The correct answer is B because the market value of equity is $30 * 5 million = $150 million, and the market value of debt is 0.98 * $1,000 * 20,000 = $19.6 million. So, the capital structure weights are 150 / (150 + 19.6) = 88.44% for equity and 19.6 / (150 + 19.6) = 11.56% for debt.

Suppose That a Company's Equity Is Currently Selling for $30