Question

Suppose that Lil John Industries' equity is currently selling for $37 per share and that 2 million shares are outstanding. Assume the firm also has 30,000 bonds outstanding, and they are selling at 103 percent of par. What are the firm's current capital structure weights? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Capital Structure Weights Equity Debt

Answer 1

Assuming face value to be $1,000

Market value of debt = 30,000 * (103% of 1000 ) = 30,900,000

Market value of stock = 2,000,000 * 37 = 74,000,000

Total market value = 30,900,000 + 74,000,000 = 104,900,000

1)

Weight of equity = (74,000,000 / 104,900,000) * 100

Weight of equity = 70.54%

2)

Weight of debt = (30,900,000 / 104,900,000) * 100

Weight of debt = 29.46%