7. 12.

Book value versus market value [LO 14.3] Queenbeyan Limited has 7 million ordinary shares outstanding. The current share price is $68 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 $70 million, a coupon rate of 6 per cent and sells for 97 per cent of face value. The second issue has a face value of $40 million, a coupon rate of 6.5 per cent and sells for 108 per cent of face value. The first issue matures in 21 years, the second in 6 years. Both bonds make semiannual coupon payments.

1. What are the company’s capital structure weights on a book value basis?

2. What are the company’s capital structure weights on a market value basis?

3. Which are more relevant, the book or market value weights?

Why?