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7 March, 10:18

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.)

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  1. 7 March, 13:52
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    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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