Problem:
A company has 8 million shares of stock outstanding. The current share price is $73, and book value per share is $7. 2 bond issues are also outstanding. The first bond has face value of $85 million with a 7% coupon, and sells for 97% of par. The second bond has a face value of $50 million with an 8% coupon, and sells for 108% of par. The first matures in 21years, the second in 6 years.
Required:
Question 1: What are the capital structure weights on a book value basis?
Question 2: What are the capital struxture weights on a market value basis?
Question 3: Which are more relevant & why?
Note: Provide support for your underlying principle.