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[solution]: 12. Book Value versus Market Value Erna Corp. has 8 million shares of com- mon stock outstanding....


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12.        Book Value versus Market Value   Erna Corp. has 8 million shares of com- mon stock outstanding. The current share price is $73, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a 7 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, has an 8 percent coupon, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. a.   What are Erna’s capital structure weights on a book value basis? b.   What are Erna’s capital structure weights on a market value basis? c.    Which are more relevant, the book or market value weights? Why?    

 


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