Capital Structure (BV VS. MV) Highland Manufacturing needs to raise capital for a major geographic expansion. It is evaluating whether to issue more bonds or raise capital from shareholders. First it needs to determine what its existing capital structure is so it can then determine the best capital structure going forward. 6 Highland's current Balance Sheet reflects it has 9.5 million shares of common stock oustanding. The curren price is $53 and the book value per share is $5. Highland also has two bond issues outstanding. The first 8 bond issue has a face value of $75 million and an 8% coupon and sells for 93% of par. The second issue 9 has a face value of $60 million and a 7.5% coupon and sells for 96.5% of par. The first issue matures in 10. 10 years and the second in 6 years. 11 12 13 What are Highland's capital structure weights (debt vs. equity) on book value basis 2 14 Book Value is the value of debt & equity from the financial statements 15 16 17 18 19 What are Highland's capital structure weights (debt vs. equity) on a market value basis? 20 Market Value is the balue of dedb and equity determined by markets 21 23 24 25 Which is the more relevant measure? 26 Book Value 27 28 29 What issues need to be considered when using market values? N 4 N A