Erna Corp. has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $5. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $60 million, has a coupon of 5 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, has a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years.
a. What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))
Equity/Value
Debt/Value
b. What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))
Equity/Value
Debt/Value
c. Which are more relevant, the book or market value weights?
Market value
Book value