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 firm's equity value is $30 per share * 5 million shares = $150 million. The firm's debt value is 20,000 bonds * $1,000 * 98% = $19.6 million. The total value of the firm is $150 million + $19.6 million = $169.6 million. The equity weight is $150 million / $169.6 million = 88.44%. The debt weight is $19.6 million / $169.6 million = 11.56%.

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