Suppose that a company's equity is currently selling for $55 per share and that there are 1 million shares outstanding. If the firm also has 50 thousand bonds outstanding, which are selling at 95 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 firm's equity is worth $55 million (1 million shares x $55 per share) and its debt is worth $47.5 million (50 thousand bonds x $950 per bond). Therefore, the firm's capital structure weights are 53.66% equity and 46.34% debt.

Suppose That a Company's Equity Is Currently Selling for $55