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Masterson, Inc., has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $10. The
Masterson, Inc., has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $10. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon rate of 4 percent, and sells for 96 percent of par. The second issue has a face value of $65 million, has a coupon rate of 3 percent, and sells for 108 percent of par. The first issue matures in 20 years, the second in 9 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant, the book or market value weights? a. Equity/Value Debt/Value b. Equity/Value Debt/Value More relevant c
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